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United States Government Accountability Office:
GAO:
Report to Congressional Requesters:
March 2012:
Housing Choice Vouchers:
Options Exist to Increase Program Efficiencies:
GAO-12-300:
GAO Highlights:
Highlights of GAO-12-300, a report to congressional requesters.
Why GAO Did This Study:
The Department of Housing and Urban Development’s (HUD) Housing Choice
Voucher (voucher) program subsidizes private-market rents for
approximately 2 million low-income households. HUD pays a subsidy that
generally is equal to the difference between the unit’s rent and 30
percent of the household’s income. HUD also pays an administrative
fee, based on a formula, to more than 2,400 local housing agencies to
manage the program. Over time, program expenditures steadily have
risen, causing some to question how well HUD managed costs and used
program resources. This report (1) discusses the key drivers of cost
growth in the voucher program and the actions taken to control this
growth and (2) analyzes various options to cut costs or create
efficiencies. For this report, GAO analyzed HUD data; reviewed budget
documents, program laws and regulations, guidance, academic and
industry studies, and GAO reports; and interviewed officials from HUD,
industry groups, and 93 housing agencies.
What GAO Found:
Several factors—-including rising rents, declining household incomes,
and decisions to expand the number of assisted households-—were key
drivers of the approximately 29 percent increase (before inflation) in
housing agencies’ expenditures for the voucher program between 2003
and 2010. Congress and HUD have taken steps to limit cost increases
while maintaining assistance for existing program participants. For
example, Congress moved away from providing funding to housing
agencies based on the number of voucher-assisted households they were
authorized to subsidize and instead provided funding based on the
generally lower number of voucher-assisted households housing agencies
actually subsidized in the prior year. Further, HUD has proposed
administrative relief and program flexibility for housing agencies,
including streamlining program requirements and reducing subsidies
paid.
GAO identified several additional options that if implemented
effectively, could substantially reduce the need for new
appropriations, cut costs (expenditures), or increase the number of
households assisted.
* Reduce housing agencies subsidy reserves. Housing agencies have
accumulated approximately $1.8 billion in subsidy reserves (unspent
funds). They can hold the funds in reserve or spend them on authorized
program expenses in future years. Over time, large sums can
accumulate. Although HUD has sought the authority to offset (reduce)
its future budget requests by the amount of “ excess” subsidy
reserves, it has not provided Congress with complete or consistent
information on how much of these reserve funds housing agencies should
retain for contingencies. GAO has highlighted the importance of
providing clear and consistent information on housing agencies’
reserves to Congress so it can make informed funding decisions.
* Implement administrative reform. HUD officials have noted that
certain requirements for administering the voucher program are
burdensome and costly and could be streamlined. In addition, the
formula HUD uses to pay administrative fees to housing agencies is not
tied to current administrative costs or requirements. HUD has an
administrative fee study underway, which intends to identify specific
reforms to ease administrative burden, increase efficiencies, and
suggest ways to align the administrative fee formula with the
functions housing agencies perform. Without this information, Congress
may not have the information necessary to make fully informed policy
and funding decisions related to the voucher program.
* Implement rent reform and consolidate voucher administration. Rent
reform (for example, reducing subsidies by requiring households to pay
more toward rent) and consolidation of program administration under
fewer housing agencies could yield substantial cost savings—-
approaching $2 billion—-or allow housing agencies to serve additional
households, provided annual savings were reinvested in the program.
However, while these options may have some advantages over the current
program structure, they would require policymakers to consider some
potential trade-offs, including increased rent burdens for low-income
households, increased concentration of assisted households in high
poverty areas, and more limited local control over voucher programs.
What GAO Recommends:
GAO identifies options for increasing efficiencies and recommends that
HUD (1) determine what level of reserve funding housing agencies
should maintain and reduce future budget requests by the amount of
excess reserves and (2) consider proposing options for simplifying
program administration and changes to the administrative fee formula.
HUD did not agree or disagree with the recommendations. While it noted
that the draft provided an accurate assessment, it offered some
clarifications and responses.
View [hyperlink, http://www.gao.gov/products/GAO-12-300]. For more
information, contact Mathew J. Scirè at (202) 512-8678 or
sciremj@gao.gov.
[End of section]
Contents:
Letter:
Background:
Several Factors Contributed to Cost Increases in the Voucher Program
from 2003 through 2010, and Congress and HUD Made Efforts to Limit
Them:
Options Exist to Reduce Program Costs or Increase Efficiencies:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Objectives, Scope, And Methodology:
Appendix II: Comment From U.S. Department Of Housing And Urban
Development:
Appendix III: GAO Contact And Staff Acknowledgment:
Tables:
Table 1: Primary Examples of Special-Purpose Vouchers:
Table 2: Annual Appropriations and HUD Outlays for the Voucher
Program, from Fiscal Years 2005 through 2011:
Table 3: Percentage of Expenditure Increases Resulting from Changes in
Subsidy Costs for Existing Vouchers, Subsidy Costs for New Vouchers,
and Administrative Fees, 2003 to 2010:
Table 4: Summary of Fiscal Year 2008 and 2009 Subsidy Reserve
Rescissions and Offsets:
Table 5: HUD's Proposed Voucher Program Reforms:
Table 6: Summary of Subsidy Reserve Rescissions and Offsets and the
Allocation of Supplemental Funding, Fiscal Years 2008 and 2009:
Table 7: Administrative Streamlining Efforts Implemented or Proposed
at MTW Agencies:
Table 8: Estimated Annual Effect of Selected Rent Reform Options on
Program Costs and Number of Voucher-Assisted Households Served:
Table 9: Estimated Number and Percentage of Voucher-Assisted
Households for Which Rents Would Increase and the Average Monthly
Increase, by Rent Reform Option:
Table 10: Comparison of Two-and Three-Bedroom Monthly Rents under a 35
Percent of Fair Market Rent Structure, for Three Areas:
Figures:
Figure 1: Annual Expenditures of Disbursed Funds by Housing Agencies
for the Voucher Program, from 2003 through 2010:
Figure 2: Median Gross Rents (2011 Constant Dollars) for Units Leased
by Voucher-Assisted Households, from 2003 through 2010:
Figure 3: Median Annual Household Income (2011 Constant Dollars) of
Voucher-Assisted Households, from 2003 through 2010:
Figure 4: Estimated Effect of Rent Reform Options on Monthly Rents of
All Voucher-Assisted Households, by Household Type:
Figure 5: Estimated Effect of Rent Reform Options on Monthly Rents of
Affected Voucher-Assisted Households, by Household Type:
Abbreviations:
GPRA: Government Performance and Results Act of 1993:
GPRAMA: Government Performance and Results Modernization Act of 2010:
HUD: Department of Housing and Urban Development:
HUDCAPS: HUD Central Accounting and Program System:
MTW: Moving to Work:
NRA: Net Restricted Assets:
PIC: Public and Indian Housing Information System:
VASH: Veteran Affairs Supportive Housing:
VMS: Voucher Management System:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
March 19, 2012:
Congressional Requesters:
Annually from fiscal years 2003 through 2010, the Department of
Housing and Urban Development's (HUD) Housing Choice Voucher (voucher)
program helped provide affordable rental housing to approximately 2
million households with very or extremely low incomes.[Footnote 1] In
the same period, program expenditures grew at an average annual rate
of about 4 percent from $11.7 billion to $15.1 billion. The voucher
program is unique among HUD's rental assistance programs in paying
subsidies to landlords to help households rent units (apartments or
houses) on the private market. The amount of subsidy HUD pays
generally is equal to the difference between the unit's rent and 30
percent of the household's income. While Congress and HUD have
supported and enacted changes to the voucher program designed to limit
growth in appropriations without reducing the number of households
that received assistance, they also added new vouchers targeted at
homeless veterans, nonelderly disabled households, and others. In the
current constrained economic and budget environment, policymakers have
questioned the consistent growth in voucher program costs and whether
HUD and public housing agencies that administer the program adequately
managed costs.
In response to your request, this report discusses the factors that
have affected costs in the voucher program from 2003 through 2011 and
the actions Congress and HUD took to manage these costs. The report
also identifies additional steps that could be taken to limit cost
growth in the voucher program or more efficiently provide decent,
safe, and affordable housing.
To determine the factors that have affected costs in the voucher
program from 2003 to 2011 and the actions Congress and HUD took to
manage these costs, we reviewed and analyzed appropriations
legislation, budget documents, and HUD's annual guidance on the
allocation of the program's appropriation to housing agencies. The
start year for our analysis reflects the year when Congress began
changing the voucher program's funding formula.[Footnote 2] We
analyzed program data that HUD prepared using information derived from
multiple HUD systems including the Central Accounting and Program
System (HUDCAPS) and Voucher Management System (VMS) to determine how
much housing agencies' expenditures changed from 2003 through 2010.
[Footnote 3] We also reviewed prior work by GAO and others to describe
what is known about the cost-effectiveness and characteristics of
vouchers relative to other forms of rental housing assistance. To
identify additional steps that could be taken to limit cost growth in
the voucher program and more effectively provide decent, safe, and
affordable housing, we identified and reviewed relevant legislation,
draft legislation, and studies. We analyzed HUD's VMS data on the
balances of Net Restricted Assets (NRA or subsidy reserves) for
housing agencies as of September 30, 2011, to determine the extent of
such reserves for housing agencies. In addition, using data from HUD's
Public and Indian Housing Information System (PIC) on household
characteristics, income, and rents, we evaluated the cost and policy
implications of three types of programmatic reform options for the
voucher program: increasing minimum rents, changing the percent of
income tenants pay toward rent, and requiring tenants to pay a
percentage of fair market rent. In identifying and assessing these
programmatic reform options, we reviewed proposals included in draft
legislation and in HUD, Congressional Budget Office, and housing
industry group reports. We also considered reforms certain agencies
have implemented. In conducting our work, we assessed the reliability
of datasets that HUD provided, including data files derived from
HUDCAPS, VMS, and PIC and determined that the data were sufficiently
reliable for the purposes of this report. Finally, for all of our
objectives, we interviewed HUD officials and consulted with an
academic and officials from various housing groups. We also contacted
or visited 62 housing agencies that administer the voucher program and
31 of the 35 housing agencies participating in the Moving to Work
(MTW) demonstration program. See appendix I for a more detailed
discussion of our scope and methodology.
We conducted this performance audit from February 2011 through March
2012 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives.
Background:
The voucher program is not an entitlement program. As a result, the
amount of budget authority HUD requests and Congress provides through
the annual appropriations process limits the number of households that
the program can assist.[Footnote 4] Historically, appropriations for
the voucher program (or for other federal housing programs) have not
been sufficient to assist all households that HUD has identified as
having worst-case housing needs--that is, unassisted households with
very low incomes that pay more than 50 percent of their incomes in
rent, live in substandard housing, or both.[Footnote 5] In 2009, 41
percent of the more than 17 million very low-income renters had worst-
case housing needs, according to HUD. The primary problem affecting
these renters was rent burden--approximately 97 percent paid more than
50 percent of their incomes in rent.[Footnote 6]
To be eligible for assistance, in general, households must have very-
low incomes--not exceeding 50 percent of the area median income, as
determined by HUD. Under the Quality Housing and Work Responsibility
Act of 1998 (P.L. 105-276), at least 75 percent of new voucher program
participants must have extremely low incomes--not exceeding 30 percent
of the area median income.[Footnote 7]
Under the voucher program, an assisted household pays 30 percent of
its monthly adjusted income in rent; the remainder of the rent is paid
through a HUD-subsidized "voucher," which generally is equal to the
difference between (1) the lesser of the unit's gross rent (generally,
rent plus utilities) or a local "payment standard" and (2) the
household's payment. The payment standard is based on the HUD-
determined fair market rent for the locality, which generally equals
the 40th percentile of market rents (including utilities) recent
movers paid for standard-quality units. HUD annually estimates fair
market rents for metropolitan and nonmetropolitan areas.[Footnote 8]
Housing agencies--the state and local agencies that administer the
voucher program on HUD's behalf--can set payment standards (that is,
pay subsidies) between 90 percent and 110 percent of the fair market
rent for their areas. By determining fair market rents and setting
payment standards at a rate sufficient to provide acceptable choices
for voucher program participants, HUD and housing agencies essentially
set the upper and lower bounds on the cost of typical, standard-
quality units that voucher holders rent. Participants in the voucher
program can choose to live in units with gross rents that are higher
than the payment standard, but they must pay the full difference
between the unit's gross rent and the payment standard, plus 30
percent of their income.[Footnote 9]
In 2011, more than 2,400 housing agencies administered more than 2.2
million vouchers--their programs ranged in size from more than 96,000
vouchers to fewer than 5. Housing agencies are responsible for
inspecting units, ensuring that rents are reasonable, determining
households' eligibility, calculating and periodically re-determining
households' incomes and rental payments, and making subsidy payments
to landlords.[Footnote 10] In addition, housing agencies perform basic
program functions, such as establishing and maintaining a waiting
list, processing tenant moves, conducting landlord and tenant
outreach, and reporting to HUD. HUD disburses appropriated funds to
housing agencies for subsidy payments to landlords and administrative
expenses.
Each year, Congress appropriates funding for subsidies for renewal
(existing) and incremental (new) vouchers and administrative expenses.
As part of the appropriations process, Congress outlines a formula
that determines the amount of renewal funding for which housing
agencies are eligible ("eligible amount"). However, the amount
Congress appropriates to the voucher program may not equal the total
amount for which housing agencies are eligible under the formula. HUD
is responsible for allocating program funding ("appropriated amount")
among housing agencies based on their eligible amounts. To the extent
that the appropriated amount does not fully fund housing agencies at
their eligible amounts, HUD reduces the funding housing agencies
receive to fit within the appropriated amount. Housing agencies are
expected to use all the subsidy funding HUD allocates for authorized
program expenses (including subsidy and utility payments). However, if
housing agencies' allocated amounts exceed the total cost of their
program expenses in a given year, they must maintain their unused
subsidy funds in NRA (reserve) accounts. Housing agencies may use
their NRA balances (subsidy reserves) to pay for authorized program
activities in subsequent years.[Footnote 11]
Incremental vouchers include various special-purpose vouchers.
Congress appropriates funding for these vouchers in separate line
items in the budget, which distinguish them from renewal vouchers.
Housing agencies must apply to HUD to receive allocations of and
funding for the special-purpose vouchers, which, as described in table
1, include Enhanced, Tenant Protection, Family Unification Program,
Mainstream, Nonelderly Disabled, and Veteran Affairs Supportive
Housing vouchers. These vouchers may have different or additional
eligibility and operational requirements than renewal vouchers. After
the first year, special-purpose vouchers generally become renewal
vouchers for purposes of determining funding eligibility in the next
year, but HUD may require that housing agencies separately track them
as special-purpose vouchers.
Table 1: Primary Examples of Special-Purpose Vouchers:
Type of special-purpose voucher: Enhanced;
Description: Enhanced vouchers are available to tenants facing a
housing conversion action, including owner opt-outs of Section 8
project-based contracts, mortgage prepayments, or voluntary
terminations of the mortgage insurance associated with the
preservation-eligible property. By statute, HUD must offer enhanced
vouchers to families affected by housing conversions.
Type of special-purpose voucher: Tenant Protection;
Description: Tenant protection vouchers subsidize rents for tenants
facing a housing conversion action or HUD enforcement actions against
owners not covered by enhanced vouchers, including terminations or non-
renewals of Section 8 project-based contracts, sales or foreclosures
of HUD-subsidized mortgages, or demolitions/dispositions of public
housing.
Type of special-purpose voucher: Family Unification Program;
Description: These vouchers are available to families for whom the
lack of adequate housing is a primary factor in the separation, or
threat of imminent separation of their children, or in the delay of
the discharge of children to the family from out-of-home care. The
vouchers also are available to youths aged 18 to 21 who left foster
care at age 16 or older and who lack adequate housing.
Type of special-purpose voucher: Mainstream;
Description: Mainstream vouchers assist families that include a person
with disabilities who faces difficulties in locating suitable and
accessible housing in the private market.
Type of special-purpose voucher: Nonelderly Disabled;
Description: These vouchers are designed to provide choices to
nonelderly disabled residents in their transition out of elderly-
designated public housing or care-giving institutions or developments
with preferences for elderly tenants.
Type of special-purpose voucher: Veteran Affairs Supportive Housing
(VASH);
Description: The VASH program combines HUD voucher rental assistance
for homeless veterans with case management and clinical services from
the Department of Veterans Affairs.
Source: HUD.
[End of table]
Congress appropriates funding for administrative fees, and the formula
used to calculate the administrative fee generally is based on fair
market rents, adjusted annually to reflect changes in wage rates. HUD
pays fees to housing agencies based on the number of units leased
(vouchers used) as of the first of each month. HUD pays one (higher)
rate for the first 600 units under lease and a second (lower) rate for
the remaining units. As with subsidy funding, if the appropriated
amount does not fully cover housing agencies' fees as determined by
the formula, HUD will reduce the amount of funding each housing agency
receives to fit within the appropriated amount. Since fiscal year
2006, administrative fees have accounted for less than 10 percent of
total voucher program funding.
Some housing agencies that administer vouchers can participate in and
receive funding under MTW, a demonstration program authorized by
Congress in 1996 and implemented by HUD in 1999.[Footnote 12] MTW
allows participating housing agencies to test locally designed housing
and self-sufficiency initiatives in the voucher and other federal
housing programs. Housing agencies may waive certain statutes and HUD
regulations to achieve three objectives: (1) reduce cost and achieve
cost-effectiveness in federal expenditures; (2) give incentives to
families with children whose heads of household are working, seeking
work, or in job training, educational or other programs that assist in
obtaining employment and becoming economically self-sufficient; and
(3) increase housing choices for low-income families. MTW agencies
also have "funding flexibility"--they may use their program-related
funding (including voucher subsidy funding) and administrative fees
for any purpose (programmatic or administrative).[Footnote 13]
Currently, 35 housing agencies participate in MTW--according to HUD,
they administer about 15 percent of all vouchers and account for
approximately 16 percent of all subsidy and administrative fee funding
on an annual basis. Congress and HUD fund MTW agencies pursuant to
their MTW agreements; however, the agencies could have subsidies and
administrative fees reduced if the amounts Congress appropriated were
less than the housing agencies' eligible amounts under the formulas.
Several Factors Contributed to Cost Increases in the Voucher Program
from 2003 through 2010, and Congress and Hudmade Efforts to Limit Them:
Several factors affected voucher program costs (as measured through
congressional appropriations, HUD outlays, and housing agencies'
expenditures) and in some cases contributed to cost increases from
2003 through 2010, including: (1) increases in subsidy costs for
existing vouchers, (2) subsidy costs for new vouchers, and (3)
administrative fees paid to housing agencies. In addition to these
factors, the design and goals of the voucher program, such as
requirements to target assistance to certain households, contributed
to overall program costs. Despite increases in the cost of the program
from 2003 through 2010, our work and other published studies have
found that vouchers generally have been more cost-effective in
providing housing assistance than federal housing production programs
designed to add to or rehabilitate the low-income housing stock. In
addition, Congress and HUD have taken several steps to manage cost
increases over the period.
Subsidies for Existing and New Vouchers and Increases in
Administrative Fees Contributed to Cost Increases in the Voucher
Program from 2003 through 2010:
Several factors affected increases in congressional appropriations,
HUD outlays, and housing agencies' expenditures in the voucher program
from 2003 through 2010. As shown in table 2, from fiscal years 2005
through 2011, voucher program appropriations increased from
approximately $14.8 billion to $18.4 billion (approximately 4 percent
annually). Over the same period, outlays--funding HUD disburses to
housing agencies for program expenses--increased from $10 billion to
$18.6 billion (approximately 11 percent annually). Information on
appropriations and outlays for the voucher program were not available
for 2003 and 2004 because HUD did not report this information
separately from other rental assistance programs.
Table 2: Annual Appropriations and HUD Outlays for the Voucher
Program, from Fiscal Years 2005 through 2011:
Fiscal year[A]: 2005;
Appropriation[B]: $14.8 billion;
HUD Outlay: $10.0 billion.
Fiscal year[A]: 2006;
Appropriation[B]: $15.4 billion;
HUD Outlay: $13.0 billion.
Fiscal year[A]: 2007;
Appropriation[B]: $15.9 billion;
HUD Outlay: $16.0 billion.
Fiscal year[A]: 2008;
Appropriation[B]: $16.4 billion;
HUD Outlay: $15.7 billion.
Fiscal year[A]: 2009;
Appropriation[B]: $16.8 billion;
HUD Outlay: $16.0 billion.
Fiscal year[A]: 2010;
Appropriation[B]: $18.2 billion;
HUD Outlay: $18.0 billion.
Fiscal year[A]: 2011;
Appropriation[B]: $18.4 billion;
HUD Outlay: $18.6 billion.
Source: GAO analysis of budget data.
[A] In 2005 Congress created a specific budget account (Tenant-based
Rental Assistance) for the voucher program. Prior to this, Congress
provided a combined appropriation for both the voucher and Project-
based Section 8 programs through the Housing Certificate Fund. As a
result, it is not possible to distinguish the voucher program's
appropriations and outlays from those of the Project-based Section 8
programs prior to 2005.
[B] Appropriations include supplemental funding, carryovers, and
rescissions.
[End of table]
Once disbursed, housing agencies expend program funds on activities
such as making subsidy payments to landlords and for administrative
expenses. As shown in figure 1, from 2003 through 2010, housing
agencies' expenditures increased from approximately $11.7 billion to
$15.1 billion (about 4 percent annually). Expenditure data for 2011
were not available at the time we were conducting our review. HUD's
outlays and housing agencies' expenditures can differ somewhat in any
given year because of differences in the timing of payments and
fluctuations in the rate of funding utilization--that is, some housing
agencies may not use all of their apportioned funds and may build
reserves. Later in this report we discuss the extent to which housing
agencies have accumulated subsidy reserves and steps Congress and HUD
could take to reduce future budget requests or reallocate the reserve
funds.
Figure 1: Annual Expenditures of Disbursed Funds by Housing Agencies
for the Voucher Program, from 2003 through 2010:
[Refer to PDF for image: line graph]
Year: 2003;
Expenditures: $10.57 billion.
Year: 2004;
Expenditures: $11.25 billion.
Year: 2005;
Expenditures: $11.00 billion.
Year: 2006;
Expenditures: $10.67 billion.
Year: 2007;
Expenditures: $11.18 billion.
Year: 2008;
Expenditures: $12.19 billion.
Year: 2009;
Expenditures: $13.09 billion.
Year: 2010;
Expenditures: $13.47 billion.
Source: GAO analysis of HUD data.
Note: Expenditure data were not available for 2011.
[End of figure]
As shown in table 3, housing agencies' expenditures increased by a
total of about 28.9 percent in nominal dollars from 2003 through 2010.
Once adjusted for inflation, housing agencies' expenditures increased
by a smaller rate, approximately 8.8 percent. (We evaluated
expenditure after adjusting for the general effects of inflation using
a broad base index of price changes for all goods and services. We
expressed expenditures in 2011 constant dollars, the latest year for
which complete data on price changes are available.) In the sections
below, we discuss how (1) increases in subsidy costs for existing
vouchers, (2) subsidy costs for new vouchers, and (3) administrative
fees paid each contributed to the nominal and constant dollar
increases in voucher program costs from 2003 through 2010.
Table 3: Percentage of Expenditure Increases Resulting from Changes in
Subsidy Costs for Existing Vouchers, Subsidy Costs for New Vouchers,
and Administrative Fees, 2003 to 2010:
Percentage change in expenditures due to: Total;
Nominal dollar change: 28.9%;
Constant dollar change: 8.8%.
Percentage change in expenditures due to: Increases in subsidy costs
for existing vouchers;
Nominal dollar change: 19.5%;
Constant dollar change: 2.4%.
Percentage change in expenditures due to: Subsidy costs for new
vouchers;
Nominal dollar change: 5.3%;
Constant dollar change: 4.4%.
Percentage change in expenditures due to: Administrative fees paid;
Nominal dollar change: 4.1%;
Constant dollar change: 2.0%.
Source: GAO analysis of HUD data.
Note: Nominal 2003 and 2010 dollars were converted to 2011 constant
dollars using the Bureau of Labor Statistics' Consumer Price Index--
All Urban Consumers series.
[End of table]
Increases in Subsidy Costs for Existing Vouchers:
As shown in table 3 above, in nominal terms, subsidy costs for
existing vouchers grew by of 19.5 percent, accounting for a majority
of the increase in housing agencies' expenditures from 2003 through
2010. After adjusting for inflation, subsidy costs for existing
vouchers grew by a small amount (2.4 percent) and were a smaller
contributor to the total increase in expenditures. Two factors
generally explain the remaining increase in expenditures for existing
vouchers after adjusting for inflation--changes in market rents and
household incomes. As previously discussed, the subsidies HUD and
housing agencies pay to landlords on behalf of assisted households are
based on market rents and household incomes. As a result, changes in
market rents and household incomes affect subsidy cost. As shown in
figure 2, in 2011 constant dollars, median gross rents for voucher-
assisted households increased from about $850 to $880 (or 4 percent)
over the period. Growth in rents outpaced the rate of general
inflation. As rents increase, HUD and housing agencies must pay larger
subsidies to cover the increases, assuming no changes to household
incomes or contributions to rent.
Figure 2: Median Gross Rents (2011 Constant Dollars) for Units Leased
by Voucher-Assisted Households, from 2003 through 2010:
[Refer to PDF for image: line graph]
Year: 2003;
Median gross rent: $848.
Year: 2004;
Median gross rent: $855.
Year: 2005;
Median gross rent: $847.
Year: 2006;
Median gross rent: $845.
Year: 2007;
Median gross rent: $853.
Year: 2008;
Median gross rent: $853.
Year: 2009;
Median gross rent: $886.
Year: 2010;
Median gross rent: $879.
Source: GAO analysis of HUD data.
Note: Nominal dollars were converted to 2011 constant dollars using
the Bureau of Labor Statistics' Consumer Price Index--All Urban
Consumers series.
[End of figure]
Housing agencies we contacted reported that this increase in rental
prices can be explained, in part, by increased demand and competition
for affordable housing--for example, some noted that the number of
renters has increased as a result of an increase in the number of
foreclosures in recent years. National vacancy rates--an indicator of
the relative tightness of the rental market--decreased from 2009 to
2010.
Further, as figure 3 shows, in 2011 constant dollars, the median
annual income of voucher-assisted households contracted from about
$11,000 to $10,700 (a decrease of about 3 percent) from 2003 through
2010. Over the period, incomes of assisted households did not keep
pace with the rate of general inflation. As incomes decline, voucher-
assisted households are paying less towards rent, requiring larger
subsidies to cover the difference between the rents and tenant
payments.
Figure 3: Median Annual Household Income (2011 Constant Dollars) of
Voucher-Assisted Households, from 2003 through 2010:
[Refer to PDF for image: line graph]
Year: 2003;
Median annual household income: $11,006.
Year: 2004;
Median annual household income: $11,033.
Year: 2005;
Median annual household income: $11,101.
Year: 2006;
Median annual household income: $11,150.
Year: 2007;
Median annual household income: $11,156.
Year: 2008;
Median annual household income: $10,947.
Year: 2009;
Median annual household income: $11,111.
Year: 2010;
Median annual household income: $10,702.
Source: GAO analysis of HUD data.
Note: Nominal dollars were converted to 2011 constant dollars using
the Bureau of Labor Statistics' Consumer Price Index--All Urban
Consumers series.
[End of figure]
More than half of the housing agencies we contacted reported that job
loss and wage reductions contributed to in their subsidy costs over
the period of our analysis. One housing agency in California we
contacted also reported that state cuts to social welfare programs,
including those that provide direct cash assistance, lowered incomes
for some households and therefore have increased subsidy costs. HUD
estimated that reductions in federal welfare and disability income
payments have resulted in monthly subsidy payment increases of $17 and
$5, respectively, for households that receive those forms of
assistance.
Subsidy Costs for New Vouchers:
The increase in the number of households assisted with vouchers (that
is, subsidy costs for new vouchers) from 2003 through 2010 was another
important contributor to the program's rising costs. As table 3 shows,
in nominal dollars, subsidy costs for new vouchers grew by 5.3 percent
over the period. After adjusting for inflation, the addition of new
vouchers grew by 4.4 percent, accounting for half of the overall
increase in housing agencies' expenditures over the period. Congress
increased the size of the program through the addition of special-
purpose vouchers such as Enhanced, Tenant Protection, Family
Unification Program, Mainstream, Nonelderly Disabled, and Veteran
Affairs Supportive Housing (see table 1 for a description of each of
these types of vouchers). HUD was unable to provide the data necessary
to determine the extent to which each type of voucher contributed to
the growth in program expenditures during this period.
Changes in Administrative Fees Paid to Housing Agencies:
Finally, growth in the fees paid to housing agencies to administer the
voucher program grew about 4.1 percent in nominal dollars from 2003
through 2010 (see table 3). In constant dollar terms, administrative
fees grew by 2 percent over the period. The formula HUD uses to pay
administrative fees to housing agencies is not directly tied to the
cost of performing the administrative tasks the program requires.
Moreover, the fees HUD has paid housing agencies in recent years have
been less than the amount for which they were eligible under the
formula because of reductions in appropriations. Housing agencies we
contacted noted that the cost of doing business increased over the
period of our analysis. For example, several noted that inspection
costs have increased with the growing cost of gasoline, especially for
housing agencies that administer vouchers over large geographic areas.
Others noted that policies such as portability--the ability of voucher
holders to use their vouchers outside of the jurisdiction of the
housing agency that issued the voucher--increased staff costs because
they have been increasingly complex and difficult to implement and
monitor. Representatives of housing agencies with whom we spoke said
that they have frozen salaries and hiring and increased staff hours,
among other things, to cope with reductions in administrative fees.
Program Design and Goals Also Influence Program Costs:
The design and goals of the voucher program contribute to the overall
expense of the voucher program, although it is difficult to quantify
how much of the cost increase from 2003 through 2010 was due to design
issues. Specifically, the voucher program has various features that
are intended to target or give priority to the poorest households, and
serving these households requires greater subsidies. Long-standing
federal policy generally has required household contributions to rent
to be based on a fixed percentage of household income, which can be
reduced through income exclusions and deductions for certain expenses,
such as child care and health services.[Footnote 14] Further, housing
agencies are required to lease 75 percent of their new vouchers to
extremely low-income households. In addition, housing agencies also
may establish local preferences for selecting applicants from their
waiting lists.[Footnote 15] Like the income standards and targeting
requirements, these preferences have a direct impact on subsidy costs--
for example, the Boston Housing Authority has established preferences
designed to assist "hard-to-house" individuals and families, including
those experiencing homelessness. According to housing agency
officials, because these individuals and families have little to no
income, the agency's annual per-unit subsidy costs are higher than
they would be absent the preferences. While these types of
requirements help address Congress's and HUD's goal of serving the
neediest households, HUD officials noted that such requirements make
the program more expensive than it would otherwise be if housing
agencies had more flexibility to serve households with a range of
incomes.
Similarly, program goals, such as HUD's deconcentration policy also
can affect program costs. Specifically, this policy encourages
assisted households to rent units in low-poverty neighborhoods, which
typically are more expensive. According to HUD officials, the
deconcentration goal increases subsidy costs for housing agencies and
overall costs for the department because, as previously discussed, if
rents increase, but household contributions to rent remain constant,
HUD and housing agencies must make up for the increased rent burden in
the form of higher subsidy payments.
Although Costs Have Risen, the Voucher Program Generally Has Been More
Cost-Effective Than Other Types of Housing Assistance:
Despite increases in the cost of the voucher program from 2003 through
2010, our work and other published studies consistently have found
that vouchers generally have been more cost-effective in providing
housing assistance than federal housing production programs designed
to add to or rehabilitate the low-income housing stock.[Footnote 16]
Our 2002 report provides the most recent original estimates of the
cost differences between the voucher program and certain existing
production programs.[Footnote 17] We estimated that, for units with
the same number of bedrooms in the same general location, the
production programs cost more than housing vouchers. In metropolitan
areas, the average total 30-year costs of the production programs
ranged from 8 to 19 percent greater for one-bedroom units. For two-
bedroom units, the average total 30-year costs ranged from 6 percent
to 14 percent greater.[Footnote 18] The cost advantage of the voucher
over the production programs was likely understated because other
subsidies--such as property tax abatements--and potential underfunding
of reserves to cover expected capital improvements over the 30-year
cost period were not reflected in the cost estimates for the
production programs.
Much of the research over the past several decades reached similar
conclusions. For example, in 2000, HUD found that average ongoing
costs per occupied unit of public housing were 8 to 19 percent higher
than voucher subsidy costs. In 1982, the President's Commission on
Housing found that subsidy costs for new construction were almost
twice as much as subsidy costs for existing housing.[Footnote 19] The
commission's finding set the stage for the eventual shift from
production programs to vouchers as the primary means through which the
federal government provides rental housing assistance.
Notwithstanding the cost-effectiveness of vouchers relative to other
forms of rental housing assistance, many of these studies noted the
benefits that production programs can and have conferred on low-income
households and communities such as supportive services for the elderly
and persons with disabilities. The voucher program typically does not
confer such benefits. In addition, research has indicated that some
markets may have structural issues. For example, regulatory
restrictions that reduce the supply of housing (and thus,
opportunities for households to use vouchers) make production programs
more effective tools for providing affordable housing than vouchers in
those locations.[Footnote 20] And our work found that voucher holders
sometimes are unsuccessful in using their vouchers, either because
they cannot find units that meet their needs or because landlords are
unwilling to accept their vouchers. These households may benefit more
from production programs, which can better guarantee access to
affordable housing, than vouchers.
Congress and HUD Have Taken Steps to Limit Cost Increases in the
Voucher Program:
In light of increasing program costs, Congress and HUD have taken
several steps to limit the extent of increases from fiscal years 2003
through 2011, while maintaining assistance for existing program
participants. These steps include legislative changes to the formula
HUD uses to calculate and distribute subsidy funding to housing
agencies, as well as continued efforts to reduce improper rental
assistance payments.
Congressional Actions:
Before fiscal year 2003, Congress and HUD funded housing agencies'
renewal needs based on their average per-voucher costs from the
previous year, adjusted for inflation, and multiplied by the number of
authorized vouchers.[Footnote 21] Meaning, housing agencies received
funding for all of their authorized vouchers, regardless of whether
they leased all of those vouchers. In addition, prior to 2003, HUD
provided each housing agency with reserve funding equal to one month
of its subsidy funding--housing agencies could use their reserves to
fund new vouchers (a practiced called "maximized leasing").[Footnote
22]
Beginning in fiscal year 2003, Congress changed the voucher program's
funding formula so that it would provide housing agencies with renewal
funding that was tied to housing agencies' actual costs and leasing
rates rather than the number of authorized vouchers (whether used or
unused).
* Starting in fiscal year 2003, Congress stopped providing funding for
vouchers that housing agencies issued in excess of their authorized
levels, thus prohibiting over-(or maximized) leasing.[Footnote 23]
* Congress generally based voucher program appropriations for fiscal
year 2003 and thereafter on the number of leased vouchers (not to
exceed authorized levels) and actual cost data that housing agencies
reported to HUD.
* Congress discontinued the practice of providing reserve funding for
housing agencies and instead started reserving a portion of renewal
funding to make adjustments to housing agencies' allocations for
contingencies such as increased leasing rates or certain unforeseen
costs.
* In more recent years, Congress has provided HUD appropriations that
did not fully fund housing agencies at their eligible amounts under
the funding formula.
* In every year since 2004, Congress has provided administrative fees
that were at least 6 percent lower than the 2003 rate.
* Finally, as shown in table 4, in fiscal years 2008 and 2009,
Congress rescinded a portion of housing agencies' subsidy reserves and
directed HUD, in total, to offset almost $1.5 billion from 1,605
housing agencies).[Footnote 24]
Table 4: Summary of Fiscal Year 2008 and 2009 Subsidy Reserve
Rescissions and Offsets:
Rescission and offset of excess subsidy reserves: 2008;
Number of affected housing agencies: 1,197;
Dollar total: $723,167,604.
Rescission and offset of excess subsidy reserves: 2009;
Number of affected housing agencies: 975;
Dollar total: $750,000,000.
Rescission and offset of excess subsidy reserves: Total;
Number of affected housing agencies: 1,605[A];
Dollar total: $1,473,167,604.
Source: GAO analysis of HUD data.
[A] Of these, 567 housing agencies faced rescissions and offsets in
both 2008 and 2009.
[End of table]
HUD Actions on Improper Payments:
HUD has taken steps to reduce improper payments in the voucher
program. According to HUD reports, the department has reduced gross
improper payments (subsidy over-and underpayments) resulting from
program administrator errors (that is, a housing agency's failure to
properly apply income exclusions and deductions and correctly
determine income, rent, and subsidy levels) by almost 60 percent, from
$1.1 billion in fiscal year 2000 to $440 million in fiscal year 2009.
[Footnote 25]
In addition, HUD has provided housing agencies with fraud detection
tools--such as the Enterprise Income Verification system, which makes
income and wage data available to housing agencies--and realized
continued reductions in improper payments as a result of these tools.
According to HUD, from fiscal year 2006 through 2009, the department
reduced gross improper payments resulting from errors in reported
tenant income--including the tenant's failure to properly disclose all
income sources--by approximately 37 percent, from $193 million to $121
million. These efforts do not necessarily reduce the cost of assisting
households, but they help increase the program's efficiency by helping
ensure that an appropriate level of assistance is provided and
potentially serving more households with appropriated funds.
HUD-Proposed Reforms and Additional Actions to Manage Costs:
HUD has requested the authority to implement program reforms that
could have had the potential to decrease voucher program subsidy
costs, administrative costs, or both. For example, as shown in table
5, in its fiscal year 2012 budget request, HUD proposed implementing a
rent demonstration to test alternatives to the current rent structure
that could result in assisted households paying more in rent. As we
discuss later in this report, changes to the way assisted household
contributions to rent are calculated could result in cost savings to
the program.
Table 5: HUD's Proposed Voucher Program Reforms:
Reform: Rent demonstration[A];
Budget year(s): 2012;
Description: HUD sought the authority to test alternatives to the
current rent structure with non-MTW agencies.
Reform: Increased time between re-certifications of tenant income;
Budget year(s): 2012;
Description: HUD proposed extending the time between re-certifications
of tenants with fixed incomes from 1 to 3 years.
Reform: Transforming Rental Assistance[B];
Budget year(s): 2011;
Description: HUD proposed streamlining and improving the delivery and
oversight of rental assistance across all relevant HUD programs
through the introduction of more efficient forms of administration
such as consortiums, consolidation, and other locally designed
structures. For example, a consortium of housing agencies could
centralize administrative functions for a large area or for a state.
Reform: Flexible Voucher Program;
Budget year(s): 2005, 2006, 2007;
Description: HUD proposed allowing state and local housing agencies to
administer the voucher program and encouraging housing agencies with
overlapping jurisdictions and those with small voucher programs to
consolidate or enter cooperative agreements to promote administrative
efficiencies and cut costs.
Reform: Housing Assistance for Needy Families;
Budget year(s): 2004;
Description: Under this block grant, HUD proposed making state housing
agencies responsible for the financial management and administration
of the voucher program and giving states the option to directly
administer the program or contract with local housing agencies or
other public, nonprofit, or private entities to administer voucher
assistance at the local level.
Source: GAO analysis of HUD budget documents.
[A] On December 6, 2011, HUD's Policy Development and Research issued
a request for proposal for a separate rent demonstration. According to
the request, the demonstration will test alternatives to the current
rent structure using a random assignment experimental model and most
likely would be undertaken at select MTW agencies because these
agencies already have the authority to request waivers of voucher
program laws and regulations. HUD is funding the demonstration under
its Transformation Initiative.
[B] Subsequent versions of the Transforming Rental Assistance proposal
did not include the administrative efficiencies discussed in the table.
[End of table]
Although Congress did not grant HUD the authority to implement these
voucher-related initiatives, HUD recently initiated administrative
changes to its housing agency consortium rule, a first step in the
effort to encourage housing agencies to consolidate as envisioned by
the department's 2011 Transforming Rental Assistance proposal. The
revised rule would treat participating housing agencies in a
consortium as one entity. HUD's current regulation requires that
consortium members be treated separately for oversight, reporting--as
a result, few housing agencies have formed consortiums since 1998.
Finally, in 2010, HUD began reviewing the administrative fee structure
for the voucher program.[Footnote 26] The study aims to ascertain how
much it costs a housing agency to run an efficient voucher program.
HUD plans to use the results to help develop a new formula for
allocating administrative fees. Although not enough time has passed to
determine whether HUD's findings will positively or negatively affect
costs in the voucher program, this study represents a positive effort
on HUD's part to more clearly understand administrative costs in the
voucher program and identify ways to improve efficiency. According to
HUD officials, HUD intends to use this study as a basis for future
legislative proposals, which could have implications for the cost of
administering the program.
Finally, in 2009, HUD developed a tool designed to help HUD staff and
housing agencies forecast voucher and budget utilization (that is, the
percentage of budget allocation and percentage of authorized vouchers
they are using) for up to 3 years. Department officials credit the
tool with increasing voucher program efficiency; however, HUD and
housing agencies' use of the forecasting tool has not reduced overall
costs in the voucher program.
Options Exist to Reduce Program Costs or Increase Efficiencies:
We identified several options that if implemented effectively, could
reduce voucher program costs (by approximately of $2 billion annually,
based on our estimates) or allow housing agencies to assist additional
households if Congress chose to reinvest the costs savings in the
program. First, improved information on the level of subsidy reserve
funding housing agencies should maintain could aid budget decisions
and reduce the need for new appropriations. ; Second, agency officials
have noted that the voucher program's requirements are complex and
burdensome and streamlining these requirements could reduce costs.
Finally, changes to the calculation of voucher-assisted households'
payments toward rent--known as rent reform--and consolidating voucher
administration under fewer housing agencies' could also reduce program
costs Each of these options would require congressional action to
implement, and we discuss below possible steps that HUD could take to
facilitate the implementation of some of them. Rent reform and
administrative consolidation also involve difficult policy decisions
that will affect some of the most vulnerable members of the population
and alter long-standing program priorities and practices.
Improved Information on Subsidy Reserves Could Aid Budget Decisions:
Housing agencies have accumulated subsidy reserves (unspent funds)
that Congress could use to (1) reduce program appropriations (through
a rescission and offset) and potentially meet other federal needs or
(2) direct HUD to assist additional households.[Footnote 27] As
previously discussed, HUD allocates subsidy funding to housing
agencies based on the formula Congress establishes in annual
appropriations legislation. In recent years, the formula has specified
that HUD allocate funds based on housing agencies' leasing rates and
subsidy costs from the prior year. In any given year, housing agencies
may under-lease or receive more funding than they can spend. Unless
these funds are rescinded and offset, housing agencies can keep their
unused subsidy funding in reserve accounts and spend these funds on
authorized program expenses (including rent subsidies and utility
allowance payments) in future years. Over time, large sums of money
can accumulate. As of September 30, 2011, 2,200 housing agencies had
more than $1.5 billion in subsidy reserves, which includes unspent
subsidy funding from prior years and certain set-aside funding and
funding for new vouchers where insufficient time has passed for
expenditure.
In addition, beginning in 2012, HUD implemented changes to how it
disburses subsidy funds to housing agencies. As a result of these
changes, although housing agencies may continue to accumulate subsidy
reserves, HUD, rather than the housing agencies, holds these reserves.
This change also will allow HUD to better determine the extent of the
reserves housing agencies have accumulated.[Footnote 28]
HUD officials told us that the department believes that it requires
specific authority from Congress to reduce (offset) future voucher
program budget requests by all or a portion of housing agencies'
subsidy reserves.[Footnote 29] Although HUD provides quarterly reports
to the Congressional Budget Office on the extent of housing agencies'
reserves and has requested the authority to offset and in some cases,
redistribute "excess" reserves (that is, reserves beyond what is
needed to fund contingencies, such as cost increases from rising
rental rates or falling tenant incomes, as defined by HUD), the
department has not developed specific or consistent criteria defining
what constitutes excess reserves or how it would redistribute funding
among housing agencies. For example, in its fiscal year 2012 voucher
program budget proposal, HUD requested the authority to offset excess
reserves. According to the proposal, if given this authority, the
department first would reallocate the funds to housing agencies to
make up any difference between the appropriated amount and the total
funding for which housing agencies were eligible based on the renewal
formula and then redistribute any remaining funds to housing agencies
based on "need and performance." However, the proposal did not specify
how HUD would calculate excess subsidy reserves or a detailed
methodology for redistributing the funds, and HUD officials
acknowledged that redistributing excess funds among housing agencies
will increase the size and the cost of the program over time because
if housing agencies are able to lease more vouchers with these funds,
Congress will have to appropriate more funding for renewal vouchers in
subsequent years.
Furthermore, HUD's definition for what constitutes excess reserves has
varied. For example, HUD officials told us that housing agencies
should retain one month (approximately 8.5 percent) of their annual
funding allocations in reserves. However, in its fiscal year 2010 and
2011 budget proposals, HUD defined excess reserves as those in excess
of 4 and 6 percent, respectively, of housing agencies' allocated
amounts.[Footnote 30] Further, HUD generally has excluded housing
agencies with 250 and fewer vouchers from its proposed offsets. HUD
officials told us that they have been considering lowering this
threshold or developing a sliding scale methodology (generally based
on size) to determine the amount of reserves housing agencies should
maintain and the amount of excess reserves that HUD would propose
offsetting and redistributing.
In past work, we highlighted the importance of HUD's clearly
identifying the existence and amount of unexpended subsidy funds
(reserves) so that Congress could have confidence in the department's
capacity to effectively manage the funding appropriated for the
voucher program. We concluded that HUD should take steps to ensure
that reserves did not reach unreasonable levels--that is, in excess of
what is prudently needed to address contingencies.[Footnote 31] More
recently, we stated that agency reporting about key areas such as
financial management or program reforms should competently inform
congressional decision making, and agencies should engage Congress
about how to present this information.[Footnote 32]
While a reserve for contingencies is prudent, without clear and
consistent criteria for determining what constitutes an appropriate
level for housing agency reserves, it is difficult to judge how well
HUD managed the funding Congress has provided for the voucher program.
For example, as previously discussed, in fiscal years 2008 and 2009
Congress rescinded and directed HUD to offset excess subsidy reserves.
However, as shown in table 6, the 2009 rescission and offset were too
large for 288 (about 18 percent) of the 1,605 housing agencies that
were subject to the 2008 and 2009 rescissions and offsets to absorb.
Congress had to provide these 288 and an additional 152 housing
agencies with supplemental funding to prevent the termination of
voucher assistance.
Table 6: Summary of Subsidy Reserve Rescissions and Offsets and the
Allocation of Supplemental Funding, Fiscal Years 2008 and 2009:
Housing agencies that had reserves rescinded and offset in 2008, 2009,
or both years:
Number of affected housing agencies: 1,605;
Dollar total: $1,473,167,604.
Housing agencies that received supplemental funding in 2009:
Number of affected housing agencies: 440;
Dollar total: $122,280,516.
Housing agencies that had reserves rescinded and offset in 2008, 2009,
or both years:
Number of affected housing agencies: 288;
Dollar total: $96,684,883.
Housing agencies that did not have reserves rescinded and offset in
either 2008 or 2009:
Number of affected housing agencies: 152;
Dollar total: $25,595,633.
Source: GAO analysis of HUD data.
Note: Of the 1,605 housing agencies that had reserves rescinded and
offset, 567 housing agencies were had reserves rescinded and offset in
both 2008 and 2009.
[End of table]
Similarly, in the fiscal year 2012 budget, Congress rescinded and
directed HUD to offset housing agencies' subsidy reserves by $650
million. Based on our analysis, as of September 30, 2011, housing
agencies had approximately $606 million in excess reserves,
approximately $44 million short of the $650 million rescission amount.
Our analysis assumed that housing agencies retained in reserves the
equivalent of one month or about 8.5 percent of their annual funding
allocations--HUD's current thinking on the appropriate level of
reserves--and also excluded certain set-aside funding and funding for
new vouchers.[Footnote 33] As a result, to meet the $650 million
rescission goal, HUD would have to offset more funds from housing
agencies' reserves than would be required under a one-month reserve
criterion, potentially resulting in some housing agencies holding less
than a one month reserve for contingencies.[Footnote 34]
Administrative Reforms Could Streamline Burdensome Requirements and
Reduce Costs:
HUD officials have noted that certain requirements for administering
the voucher program have grown burdensome and costly and could be
streamlined. In May 2010, the Secretary of HUD testified that the
department's rental assistance programs "desperately need
simplification." He further stated that HUD must streamline and
simplify its programs so that they are easier for families to access,
less costly to operate, and easier to administer at the local level.
[Footnote 35] For example, under current rules, housing agencies must
re-examine household income and composition at least annually and
adopt policies describing when interim re-examinations will be
conducted.[Footnote 36] HUD has expressed support for extending the
time between re-examination of income for households on fixed incomes
from 1 to 3 years and the time between unit inspections from 1 to 2
years [Footnote 37]--according to one program administrator that
manages voucher programs for five housing agencies, annual re-
examinations and inspections account for more than 50 percent of
administrative costs in the voucher programs the agency administers.
However, overall data are not available on the actual costs of
specific administrative activities, such as annual income re-
examinations and inspections, and how they vary across housing
agencies. To help address this lack of information, HUD has initiated
a study to determine (1) what constitutes an efficient voucher
program, (2) what a realistic expectation would be for what a housing
agency should be doing to run an efficient program, (3) how much it
costs to run an efficient program, and (4) what an appropriate formula
would be for allocating administrative fees to housing agencies
operating voucher programs.[Footnote 38] According HUD, the study will
allow the department to analyze all aspects of voucher program
administration to reduce and simplify housing agencies' administrative
responsibilities.[Footnote 39] Such information will be important as
congressional decision makers consider potential reforms of
administrative requirements.
Although some of the changes needed to simplify and streamline the
voucher program would require Congress to amend existing statutes,
HUD's administrative fee study and the experiences of housing agencies
participating in MTW may provide insight into specific reforms to ease
housing agencies' reported administrative burden, as well as any
potential cost savings resulting from these reforms. For example,
according to a HUD report, while conclusive effects of many MTW
reforms, particularly as they relate to assisted households, are not
known, some of the demonstration's most compelling results to date are
those related to housing agency operations.[Footnote 40] As shown in
table 7, many of the housing agencies that participate in the
demonstration have implemented reforms that Congress has been
considering through draft legislation, HUD has proposed in its fiscal
year 2012 budget request, or both.[Footnote 41] According to the MTW
agencies, many of these initiatives have resulted in both time and
cost savings in their programs.
Table 7: Administrative Streamlining Efforts Implemented or Proposed
at MTW Agencies:
Administrative efficiency: Allow housing agencies to make subsidy
payments to landlords as they correct non-life-threatening conditions
identified as part of an inspection;
Number of MTW agencies that implemented the (or a similar) efficiency:
5[A].
Administrative efficiency: Conduct biennial inspections;
Number of MTW agencies that implemented the (or a similar) efficiency:
18[B].
Administrative efficiency: Allow inspections from alternate sources,
including those conducted for other federal, state, and local housing
assistance programs;
Number of MTW agencies that implemented the (or a similar) efficiency:
2.
Administrative efficiency: Conduct triennial re-examinations for
households with fixed incomes;
Number of MTW agencies that implemented the (or a similar) efficiency:
26[C].
Administrative efficiency: Allow fixed-income households' incomes to
be adjusted by applying an inflationary factor established by the
Secretary in any year the housing agency does not conduct a review of
income;
Number of MTW agencies that implemented the (or a similar) efficiency:
5.
Administrative efficiency: Allow housing agencies to conduct interim
re-examinations only when a household's income or deductions change by
an amount that is estimated to result in an increase of 10 percent or
more in annual adjusted income;
Number of MTW agencies that implemented the (or a similar) efficiency:
6[D].
Administrative efficiency: Allow housing agencies to use households'
prior-year income in determining income for annual reviews;
Number of MTW agencies that implemented the (or a similar) efficiency:
0.
Administrative efficiency: Allow housing agencies to rely on income
determinations made for other federal, means-tested, public assistance
programs;
Number of MTW agencies that implemented the (or a similar) efficiency:
2.
Administrative efficiency: Exclude from incomes imputed returns on net
assets that do not exceed $50,000;
Number of MTW agencies that implemented the (or a similar) efficiency:
20[E].
Source: GAO analysis of draft legislation and interviews with MTW
agencies.
[A] All housing agencies allow either the tenant or owner, or both to
self-certify correction of non-life-threatening conditions.
[B] Most of these housing agencies set criteria that need to be meet
before changing the inspection schedule of a unit. For example, some
agencies specify that units must have passed one inspection before
placing them on a biennial schedule.
[C] The majority of these housing agencies conduct biennial re-
examinations of fixed-income households rather than triennial. In
addition, 12 have an alternate re-examination schedule for other types
of households.
[D] These housing agencies have made changes to their interim re-
examination policies. For example, one of these agencies limits
interim re-examinations based on a criteria that includes a decrease
in adjusted income of 10 percent or more (elderly/disabled families
are exempt).
[E] The amount of asset income excluded from income varies. For
example, some set this amount at $5,000 and others exclude asset
income.
[End of table]
In addition, and as previously discussed, the existing administrative
fee formula generally is linked to fair market rents that are adjusted
annually to reflect changes in wage rates, and HUD pays fees to
housing agencies based on the number of units leased (vouchers used)
as of the first of each month. This formula is not tied to the
program's current administrative costs or requirements. Further,
housing agencies we contacted reported that the cost of administering
the voucher program has been on the rise, with contributing factors
including higher postage, fuel, and employee health care costs, as
well as increased reporting and other requirements.
Without more specific information about potential reform options,
policymakers will not be able to make an informed decision about how
to reform the administrative fee formula and the activities required
to administer an efficient voucher program. These efforts--using the
administrative fee study to identify specific reforms and leveraging
the experiences of MTW agencies--are in line with the goals of the
Government Performance and Results Act of 1993 (GPRA), which Congress
enacted, in part, to inform its decision making by helping to ensure
that agencies provide objective information on the relative
effectiveness and efficiency of their programs and spending.[Footnote
42] Whether HUD's study will yield findings that eventually will
result in measureable cost or time savings is not clear. While
reforming administrative requirements for the voucher programs could
lead to increased efficiencies and cost savings, the administrative
fee paid to housing agencies is a relatively modest share of the
program's overall annual appropriations--approximately 9 percent in
recent years. Nevertheless, such efforts will provide Congress with
timely and meaningful information, which will enhance its ability to
make decisions about funding for and requirements of the voucher
program.
Rent Reform and Consolidation Could Result in Reduced Costs or More
Households Served, but Both Involve Trade-offs:
If implemented, rent reform (that is, changes to the calculation of
households' payment toward rent) and the consolidation of voucher
administration under fewer housing agencies could yield substantial
cost savings, allow housing agencies to serve additional households if
Congress were to reinvest annual cost savings in the voucher program,
or both.[Footnote 43] Further, these reform options are not mutually
exclusive; that is, cost savings or additional households served could
be greater if both options were implemented. Further, implementation
of these options may involve some trade-offs, including increased rent
burdens for assisted households.
Rent Reform:
As previously discussed, under current program rules, an assisted
household generally must contribute the greater of 30 percent of its
monthly adjusted income or the housing-agency established minimum
rent--up to $50--toward its monthly rent. HUD's subsidy is the
difference between (1) the lesser of the unit's gross rent or the
applicable payment standard and (2) the household's rental payment.
Therefore, as an assisted household's income increases, HUD's subsidy
payment decreases, and vice versa. Under existing program rules, a
household could pay no rent--if the household has no monthly income
after adjustments, the housing agency from which the household
receives assistance does not have a minimum rent, or the household
obtained a hardship exemption.[Footnote 44] However, such households
make up a small share of all voucher-assisted households, with more
than 99 percent making some dollar contributions to their rent.
[Footnote 45]
Because about 90 percent of voucher program funds are used to pay
subsidies, decreasing the level of subsidy for which households are
eligible (or, alternatively stated, increasing the amount households
must contribute toward rent) necessarily will yield the greatest costs
savings for the program. We estimated the effect, both in terms of
cost savings and additional households that could be served with those
savings if Congress chose to reinvest the savings in the program, of
several options including requiring assisted households to pay:
* higher minimum rents;
* 35 percent of their adjusted income in rent;
* 30 percent of their gross income in rent (with no adjustments);
[Footnote 46] or;
* a percentage of the applicable fair market rent.[Footnote 47]
Using HUD data, we determined that each of these options could reduce
the federal cost burden--in some cases, quite considerably--or if
Congress chose to reinvest cost savings in the program, allow housing
agencies to serve more households without additional funding. For
example, as shown in table 8, increasing minimum rents to $300 would
yield the greatest cost savings on an annual basis--an estimated $1.8
billion--or allow housing agencies to serve the greatest number of
additional households--an estimated 287,000. Requiring assisted
households to pay 30 percent of their gross income in rent would yield
the least savings for the voucher program and serve the fewest
additional households. Further, HUD operates a number of other rental
assistance programs where household subsidies are based on the same
calculations as those for the voucher program. Implementation of these
rent reform options in its other rental assistance programs has the
potential to create additional cost savings.
Table 8: Estimated Annual Effect of Selected Rent Reform Options on
Program Costs and Number of Voucher-Assisted Households Served:
Reform option: Increase minimum rents to:[B,C]
Reform option: $50[D];
Estimated annual cost savings[A]: $11 million;
Estimated additional households served: 1,400.
Reform option: 75;
Estimated annual cost savings[A]: $67 million;
Estimated additional households served: 8,600.
Reform option: 100;
Estimated annual cost savings[A]: $124 million;
Estimated additional households served: 16,000.
Reform option: 150;
Estimated annual cost savings[A]: $318 million;
Estimated additional households served: 43,000.
Reform option: 200;
Estimated annual cost savings[A]: $602 million;
Estimated additional households served: 85,000.
Reform option: 250;
Estimated annual cost savings[A]: $1.1 billion;
Estimated additional households served: 167,000.
Reform option: 300;
Estimated annual cost savings[A]: $1.8 billion;
Estimated additional households served: 287,000.
Reform option: Require households to pay:[E]
Reform option: 35 percent of adjusted income in rent;
Estimated annual cost savings[A]: $1.1 billion;
Estimated additional households served: 164,000.
Reform option: 30 percent of gross income in rent;
Estimated annual cost savings[A]: $513 million;
Estimated additional households served: 76,000.
Reform option: 35 percent of the fair market rent[F];
Estimated annual cost savings[A]: $927 million;
Estimated additional households served: 136,000.
Source: GAO analysis of HUD data.
[A] To estimate the effect of these options on program costs and
households assisted, we analyzed household characteristic and rent
data as of December 2010. These estimates illustrate the relative
effects of the options if fully implemented in one year. Actual
implementation of such options likely would be done gradually and not
all of the savings or efficiencies would be realized in the first year.
[B] We assumed that all households paid the greater of the minimum
rent or 30 percent of adjusted income. Our minimum rent calculations
did not take into account any payment households received for utility
assistance.
[C] On January 31, 2012, the House Subcommittee on Insurance, Housing,
and Community Opportunity released a revised draft of the Section 8
Savings Act entitled the Affordable Housing and Self-Sufficiency
Improvement Act of 2012. The draft bill proposes implementing a
minimum rent of at least $69.45 (adjusted annually). We estimated that
this increase would save approximately $56 million annually or could
be used to serve an additional 7,100 households if Congress chose to
reinvest the savings.
[D] We assumed all applicable households paid $50 in rent. As
previously discussed, although housing agencies are permitted to set a
minimum rent of up to $50, not all do and many offer hardship
exemptions from the requirement.
[E] For the adjusted and gross income options, we did not impose a
minimum rent requirement.
[F] For this option, we evaluated the effect of requiring households
to pay 12, 15, 20, 30, and 35 percent of the fair market rent and no
minimum rent. Only the 35 percent option resulted in cost savings or
additional households served on an annual basis--all other percentages
resulted in cost increases and fewer households served.
[End of table]
These reform options could be implemented individually and some could
be implemented together, depending on the objective policymakers were
trying to achieve--such as maximizing cost savings, minimizing the
impact on assisted households, or promoting work and self sufficiency
among families with children (that is, nonelderly, nondisabled
households).[Footnote 48] To illustrate, one housing agency in the MTW
program put in place a rent structure that gradually increases
household rents--from 27 percent of gross income in years 1 and 2, to
the greater of $100 or 29 percent of gross income in years 3 and 4,
and to the greater or $200 or 31 percent of gross income in all
subsequent years--to promote self-sufficiency among all assisted
households. Under this approach, our analysis showed that households
receive more subsidy in the first 2 years, but pay more rent over time
than under the current rent structure.[Footnote 49]
In addition to estimating the cost savings that could result from each
of these rent reform options, we evaluated each option in terms of its
effect on (1) changes in the rent paid by assisted households, (2)
household attrition rates, (3) HUD's goals of encouraging households
to move to the neighborhoods of their choice (mobility) and
discouraging households from choosing communities that have higher
levels of poverty (deconcentration), (4) incentives to seek work, (5)
program administration, and (6) housing agency and industry support.
While each of these options has advantages over the current rent
structure--they could reduce costs or create administrative
efficiencies--each also involves trade-offs.
Under each rent reform option, some households would have to pay more
in rent than they currently pay. For example, as shown in table 9, if
all households were required to pay at least $50 in rent per month, an
estimated 36,000 households (2 percent) would experience an average
increase of $31 in their monthly rent. HUD's fiscal year 2013 budget
request proposes increasing the minimum rent to $75 per month for all
assisted household. Under this option, 207,000 households (11 percent)
would experience an average increase of $27. Table 9 also shows
options that change the formula for calculating the households'
payment toward rent. For example, setting the households rental
payment to 30 percent of gross income (that is, without any
deductions) would affect about 1,662,000 households (86 percent) and
increase mean household rent by $27.
Table 9: Estimated Number and Percentage of Voucher-Assisted
Households for Which Rents Would Increase and the Average Monthly
Increase, by Rent Reform Option:
Minimum rent[B]: $50;
Number of households experiencing an increase in their monthly
payment[A]: 36,000;
Percentage of households experiencing an increase in their monthly
payment: 2%;
Mean change in monthly payment of affected households: $31.
Minimum rent[B]: $75[C];
Number of households experiencing an increase in their monthly
payment[A]: 207,000;
Percentage of households experiencing an increase in their monthly
payment: 11%;
Mean change in monthly payment of affected households: 27.
Minimum rent[B]: $100;
Number of households experiencing an increase in their monthly
payment[A]: 256,000;
Percentage of households experiencing an increase in their monthly
payment: 13%;
Mean change in monthly payment of affected households: 45.
Minimum rent[B]: $150;
Number of households experiencing an increase in their monthly
payment[A]: 358,000;
Percentage of households experiencing an increase in their monthly
payment: 19%;
Mean change in monthly payment of affected households: 75.
Minimum rent[B]: $200;
Number of households experiencing an increase in their monthly
payment[A]: 698,000;
Percentage of households experiencing an increase in their monthly
payment: 36%;
Mean change in monthly payment of affected households: 71.
Minimum rent[B]: $250;
Number of households experiencing an increase in their monthly
payment[A]: 1,012,000;
Percentage of households experiencing an increase in their monthly
payment: 52%;
Mean change in monthly payment of affected households: 92.
Minimum rent[B]: $300;
Number of households experiencing an increase in their monthly
payment[A]: 1,225,000;
Percentage of households experiencing an increase in their monthly
payment: 63%;
Mean change in monthly payment of affected households: 122.
Household Rent Formula: 35% of adjusted income;
Number of households experiencing an increase in their monthly
payment[A]: 1,751,000;
Percentage of households experiencing an increase in their monthly
payment: 92%;
Mean change in monthly payment of affected households: $50.
Household Rent Formula: 30% of gross income;
Number of households experiencing an increase in their monthly
payment[A]: 1,662,000;
Percentage of households experiencing an increase in their monthly
payment: 86%;
Mean change in monthly payment of affected households: 27.
Household Rent Formula: 35% of fair market rent[D];
Number of households experiencing an increase in their monthly
payment[A]: 1,172,000;
Percentage of households experiencing an increase in their monthly
payment: 61%;
Mean change in monthly payment of affected households: 155.
Source: GAO analysis of HUD data.
[A] To estimate the effect of each rent reform options on the number
of households affected and their monthly payments, we analyzed
household characteristic and rent data as of December 2010.
[B] The Affordable Housing and Self-Sufficiency Improvement Act of
2012proposes implementing a minimum rent of at least $69.45 (adjusted
annually). We estimated that, if implemented, approximately 198,000
households would experience an average increase of $23 in their
monthly payment.
[C] HUD's fiscal year 2013 proposed budget proposes increasing the
minimum rent to $75 per month for all assisted households.
[D] Under this option, approximately 755,000 households would
experience an average decrease of $139 in their monthly payment.
[End of table]
Increasing minimum rents primarily would affect families with children
that tend to report little or no income. Conversely, assisted elderly
and disabled households almost always report income (most likely
because they are on fixed incomes, like Social Security) and a large
percentage of them already pay close to $200 in rent.[Footnote 50] On
a programwide level, imposing minimum rents of $200 or less does not
change the amount these households pay in rent, when considering all
assisted households. Figure 4 shows the mean change in all households'
monthly rent resulting from each of these rent reform options.
Increases in monthly rental payments for elderly and disabled
households begin to increase more significantly with a $200 minimum
rent and under each of the rent formula changes. As a result, higher
minimum rents or increases to the percentage of their incomes paid in
rent will yield the greatest cost savings. For the rent formula change
to 35 percent of adjusted income, the mean change in monthly rent
generally would be similar across each household type.
Figure 4: Estimated Effect of Rent Reform Options on Monthly Rents of
All Voucher-Assisted Households, by Household Type:
[Refer to PDF for image: illustrated horizontal bar graph]
Rent reform option: Minimum rent: $50;
Mean change in monthly tenant payment by household type:
Families with children: $1;
Disabled: $0;
Elderly: $0;
Elderly, disabled: $0.
Rent reform option: Minimum rent: $75;
Mean change in monthly tenant payment by household type:
Families with children: $6;
Disabled: $0;
Elderly: $0;
Elderly, disabled: $0.
Rent reform option: Minimum rent: $100;
Mean change in monthly tenant payment by household type:
Families with children: $11;
Disabled: $1;
Elderly: $1;
Elderly, disabled: $0.
Rent reform option: Minimum rent: $150;
Mean change in monthly tenant payment by household type:
Families with children: $27;
Disabled: $2;
Elderly: $2;
Elderly, disabled: $0.
Rent reform option: Minimum rent: $200;
Mean change in monthly tenant payment by household type:
Families with children: $47;
Disabled: $8;
Elderly: $7;
Elderly, disabled: $3.
Rent reform option: Minimum rent: $250;
Mean change in monthly tenant payment by household type:
Families with children: $71;
Disabled: $30;
Elderly: $23;
Elderly, disabled: $22.
Rent reform option: Minimum rent: $300;
Mean change in monthly tenant payment by household type:
Families with children: $99;
Disabled: $61;
Elderly: $49;
Elderly, disabled: $52.
Rent reform option: Household rent formula: 35% adjusted income;
Mean change in monthly tenant payment by household type:
Families with children: $44;
Disabled: $47;
Elderly: $49;
Elderly, disabled: $48.
Rent reform option: Household rent formula: 30% gross income;
Mean change in monthly tenant payment by household type:
Families with children: $23;
Disabled: $21;
Elderly: $27;
Elderly, disabled: $19.
Rent reform option: Household rent formula: 35% fair market rent;
Mean change in monthly tenant payment by household type:
Families with children: $61;
Disabled: $23;
Elderly: $8;
Elderly, disabled: $22.
Source: GAO analysis of HUD data.
Note: To estimate the effect each rent reform option on monthly
household payments, we analyzed household characteristic and rent data
as of December 2010. The Affordable Housing and Self-Sufficiency
Improvement Act of 2012 proposes implementing a minimum rent of at
least $69.45 (adjusted annually). Under this change, only families
with children would experience a change in rent ($5 on average).
[End of figure]
Figure 5 shows the mean change in monthly rent only for those
households whose payments toward rent have changed as a result of each
reform option. Among these affected households, changes in rental
payments would be similar across household types for some of the rent
structure options. For example, if households were required to pay a
$75 minimum rent, mean rental payments would increase by $30 for
disabled households (on the high end) and $24 for elderly, disabled
households (on the low end). However, if households were required to
pay a $200 or higher minimum rent, families with children again would
experience higher mean changes in rent than disabled and elderly
households.
Figure 5: Estimated Effect of Rent Reform Options on Monthly Rents of
Affected Voucher-Assisted Households, by Household Type:
[Refer to PDF for image: illustrated horizontal bar graph]
Rent reform option: Minimum rent: $50;
Mean change in monthly tenant payment by household type:
Families with children: $31;
Disabled: $33;
Elderly: $33;
Elderly, disabled: $29.
Rent reform option: Minimum rent: $75;
Mean change in monthly tenant payment by household type:
Families with children: $27;
Disabled: $30;
Elderly: $25;
Elderly, disabled: $24.
Rent reform option: Minimum rent: $100;
Mean change in monthly tenant payment by household type:
Families with children: $45;
Disabled: $46;
Elderly: $38;
Elderly, disabled: $33.
Rent reform option: Minimum rent: $150;
Mean change in monthly tenant payment by household type:
Families with children: $77;
Disabled: $63;
Elderly: $51;
Elderly, disabled: $39.
Rent reform option: Minimum rent: $200;
Mean change in monthly tenant payment by household type:
Families with children: $106;
Disabled: $25;
Elderly: $32;
Elderly, disabled: $13.
Rent reform option: Minimum rent: $250;
Mean change in monthly tenant payment by household type:
Families with children: $135;
Disabled: $55;
Elderly: $52;
Elderly, disabled: $44.
Rent reform option: Minimum rent: $300;
Mean change in monthly tenant payment by household type:
Families with children: $166;
Disabled: $90;
Elderly: $81;
Elderly, disabled: $78.
Rent reform option: Household rent formula: Household payment
increases: 35% adjusted income;
Mean change in monthly tenant payment by household type:
Families with children: $53;
Disabled: $47;
Elderly: $50;
Elderly, disabled: $48.
Rent reform option: Household rent formula: Household payment
increases: 30% gross income;
Mean change in monthly tenant payment by household type:
Families with children: $24;
Disabled: $22;
Elderly: $28;
Elderly, disabled: $20.
Rent reform option: Household rent formula: Household payment
increases: 35% fair market rent;
Mean change in monthly tenant payment by household type:
Families with children: $196;
Disabled: $113;
Elderly: $125;
Elderly, disabled: $110.
Rent reform option: Household rent formula: Household payment
decreases: 35% adjusted income;
Mean change in monthly tenant payment by household type:
Families with children: N/A;
Disabled: N/A;
Elderly: N/A;
Elderly, disabled: N/A.
Rent reform option: Household rent formula: Household payment
decreases: 30% gross income;
Mean change in monthly tenant payment by household type:
Families with children: N/A;
Disabled: N/A;
Elderly: N/A;
Elderly, disabled: N/A.
Rent reform option: Household rent formula: Household payment
decreases: 35% fair market rent;
Mean change in monthly tenant payment by household type:
Families with children: -$183;
Disabled: -$106;
Elderly: -$115;
Elderly, disabled: -$96.
Source: GAO analysis of HUD data.
Note: To estimate the effect each rent reform option on monthly
household payments, we analyzed household characteristic and rent data
as of December 2010. The Affordable Housing and Self-Sufficiency
Improvement Act of 2012proposes implementing a minimum rent of at
least $69.45 (adjusted annually). We estimated that, if implemented,
mean rental payments would increase by $23 for families with children;
$26 for disabled households; and $21 for both elderly and elderly,
disabled households.
[End of figure]
Also as shown in figure 5, under the option where the rental payments
are based on 35 percent of the fair market rent, some households will
have to pay more in monthly rent, while others will pay less. Further,
a higher proportion of affected households will see an increase in
their rental payments. Specifically, of the approximately 1.9 million
total households whose monthly rental payments would change under this
option, about 61 percent (approximately 1.2 million households) would
experience an increase in their monthly payments and about 39 percent
(755,000 households) would experience a decrease.
Requiring households' rental payments to be based on a percentage of
the applicable fair market rent rather than 30 percent of adjusted
income primarily would affect households living in high-cost (mostly
urban) areas and large families, as well as those at the lower end of
the income scale. HUD's fair market rents reflect market prices and
unit sizes--thus, household rent shares will increase if they live in
a more expensive fair market area or rent larger units in the same
fair market rent area under a rent option based on percentage of fair
market rents. Table 10 illustrates how fair market rents and household
payments based on a percentage of the fair market rent can vary by
location and unit size.
Table 10: Comparison of Two-and Three-Bedroom Monthly Rents under a 35
Percent of Fair Market Rent Structure, for Three Areas:
2 bedroom unit:
Boston, Massachusetts:
Fair market rent: $1,357;
Monthly tenant payment: $475;
Concord, New Hampshire:
Fair market rent: $993;
Monthly tenant payment: $348;
Farmington, Maine:
Fair market rent: $687;
Monthly tenant payment: $240.
3 bedroom unit:
Boston, Massachusetts:
Fair market rent: $1,623;
Monthly tenant payment: $568;
Concord, New Hampshire:
Fair market rent: $1,226;
Monthly tenant payment: $429;
Farmington, Maine:
Fair market rent: $820;
Monthly tenant payment: $287.
Source: GAO analysis of HUD data.
[End of table]
In addition, under an option where households' rental payments are
based on a percentage of the fair market rent, lower-income households
would pay a larger percentage of their income toward rent than higher-
income households. And while many of the lowest-income households
would experience rent increases ($116 per month, on average for
families with children), many of the highest-income households would
experience rent decreases ($97 per month).[Footnote 51]
Under each of these rent reform options, a small number of households
might lose their subsidies--that is, their subsidy payments would be
reduced to zero because their new, higher rental payments would fully
cover the gross rent. For example, under the option where households
pay 35 percent of their adjusted income in rent, we estimated that
approximately 1.8 percent of households would lose their subsidies.
[Footnote 52] Further, other affected households might leave the
program because they would have to pay more in rent and no longer
choose to participate in the program. However, because the demand for
rental assistance by low-income households generally exceeds the
number of available vouchers, eligible household likely would replace
the one that left because similar unassisted households have much
higher rent burdens than assisted households. Consequently, these rent
reform options likely would not result in a sharp decline in program
participation rates.
Rent structures that decrease the amount of subsidy households receive
may discourage HUD's deconcentration efforts, as well as household
mobility. With less subsidy, households (especially those with lower
incomes) may not have the means to move from neighborhoods of
concentrated poverty to those with a diversity of people and
opportunities. But HUD's deconcentration goal presents its own trade-
offs--chief among them that fewer households ultimately would be
served, albeit with more generous subsidies. Among the rent reform
structures we evaluated, all but one would decrease household
subsidies. A rent structure under which households would pay 30
percent or less of the applicable fair market rent would increase
subsidies for almost all households and thus could further HUD's
deconcentration and mobility goals.[Footnote 53]
Two of the rent structures we evaluated--higher minimum rents and
rents based on a percentage of the fair market rent--could create work
incentives for households with little to no income. Under the current
rent structure, and as previously discussed, a household with no
income generally does not pay rent--HUD's subsidy covers the gross
rent. Consequently, some have argued that these households have little
incentive to seek employment because, for every $1 they earn, their
subsidies are reduced by 30 cents (for every $100 they earn on a
monthly basis, they will pay $30 in rent). Rent structures that do not
take into account household income may do more to encourage assisted
households to find and retain employment.[Footnote 54] Housing
agencies in the MTW program that have implemented these types of rent
structures simultaneously have offered self-sufficiency training and
services to assisted households. Additionally, rent structures that
eliminate household income from the rent equation may allow Congress
and HUD to more accurately forecast funding needs. As we previously
discussed, market rents and tenant incomes are two of the primary
drivers of program costs, and predicting changes in market rents and
incomes when developing budget proposals for future years is
difficult. These types of rent structures also would encourage
assisted households to make choices about housing consumption similar
to unassisted households. For example, households would not have an
incentive to over-consume housing because their share of the rent
would increases with the size of the unit they rented.
Moving toward a rent structure either based on fair market rents or
gross income would introduce significant administrative efficiencies
into the program and could allow housing agencies to further reduce
improper payments from administrator (housing agency) error or
tenants' underreporting of income. Some housing agencies we contacted
noted the complexity of the current income and rent determination
process and their frustrations with tracking the existence of and
changes to tenant incomes. HUD noted that requiring assisted
households to pay higher minimum rents or 35 percent of their adjust
income in rent would not create administrative efficiencies in the
voucher program. Our 2005 report on improper subsidy payments in HUD's
rental assistance programs made similar observations, finding that the
complexity of HUD's income and rent determination policies were of
major concern to HUD field offices, program administrators, and
industry groups.[Footnote 55] HUD officials noted at the time that the
department was considering various approaches for statutory,
regulatory, and administrative streamlining and simplification of its
policies for determining subsidies.
Finally, nearly all of the housing agencies we contacted said that
they supported some type of rent reform--among the most popular
options were increasing minimum rents and increasing tenant rental
payments to 35 percent of adjusted income. Some housing agencies have
suggested that they have been successful in implementing rent reform
under the MTW program with community support.[Footnote 56] Despite
this, some industry groups have voiced concern about rent reform. For
example, in commenting on a provision included in the draft Section 8
Savings Act of 2011 that would permit HUD to pursue a rent
demonstration, the National Low Income Housing Coalition stated that
the demonstration would put HUD-assisted households at risk of having
significant rent burdens.[Footnote 57] The Coalition also said that
any demonstration should include parameters that require HUD to
monitor these burdens and stop or change the demonstration if it were
found to harm assisted households.[Footnote 58]
Consolidation of Voucher Administration:
Based on our literature review and interviews with HUD and housing
industry officials, consolidation of voucher program administration
under fewer housing agencies (administrative consolidation) could
yield a more efficient oversight and administrative structure for the
voucher program and cost savings for HUD and housing agencies;
however, current information on the magnitude of these savings was not
available.
HUD spends considerable resources in overseeing housing agencies. More
than 2,400 local housing agencies administer the voucher program on
HUD's behalf. According to a 2008 HUD study, the department dedicated
from more than half to two-thirds of its level of oversight to 10
percent of its units (generally those housing agencies that administer
400 or fewer vouchers), and an even lower level of risk in relation to
the amount of subsidy funds they administered (about 5 percent of
total program funds).[Footnote 59] According to agency officials,
consolidating the administration of vouchers under fewer agencies
would decrease HUD's oversight responsibilities.
According officials from HUD and some housing agencies with whom we
spoke, administering the voucher program through small local housing
agencies may be less cost effective, in part because of the
differences in the economies of scale. For example, larger housing
agencies can realize cost efficiencies in conducting large numbers of
voucher unit inspections that smaller agencies cannot. Also, larger
housing authorities collect sufficient fees to support fraud detection
units to ensure that households report all of their income sources.
Although there are no current data on the comparative costs of
administering the voucher program though small and large housing
agencies, the current administrative fee structure recognizes that
economies of scale exist in larger housing agencies. As previously
discussed, HUD pays housing agencies a higher rate for the first 600
vouchers a housing agency has under lease and a lower rate for the
remaining units under lease. Congress passed this two-tiered fee
structure based in part on a 1994 HUD study that found that flat fee
rates were leading to administrative fee deficits in small housing
agencies and large administrative fee reserves at larger housing
agencies.[Footnote 60]
HUD has acknowledged that oversight and administrative efficiencies
could be realized. As previously discussed, in recent years, the
department has advanced several proposals aimed at streamlining and
simplifying administration of the voucher program. Several of these
proposals have advocated administrative consolidation as a means of
creating administrative efficiencies. For example, HUD's 2011 version
of the Transforming Rental Assistance initiative was intended to
streamline and improve the delivery and oversight of rental assistance
across all of the department's rental assistance programs by means
such as promoting consortiums, consolidation, and other locally
designed structures for administrative functions.
In addition, HUD recently initiated changes to its housing agency
consortium rule. The revised rule would treat all housing agencies in
a consortium as one entity--HUD's current regulation requires that
consortium members be treated separately for oversight, reporting, and
other purposes. Some have argued that the current rule does not allow
HUD or housing agencies to realize the full benefits of consolidation--
less oversight (one versus multiple agencies) and shared and thus
reduced administrative responsibilities--and therefore discourages the
formation of consortiums. Since 1998, nine housing agencies that
administer vouchers have formed four consortiums.
We evaluated the administrative consolidation in terms of its effect
on assisted households and selected voucher program goals. More
specifically, we looked at implications for, or likelihood of
achieving (1) HUD's mobility and deconcentration goals, (2) program
administration, and (3) housing agency and industry support. Like the
rent reform options we evaluated using similar criteria, consolidation
has advantages over the current administrative structure, but also
involves some trade-offs.
Consolidation might help HUD more readily achieve deconcentration
goals. Although vouchers theoretically allow recipients to use them
anywhere in the United States, the current system of program
administration creates numerous hurdles for households to move out of
high-poverty, central city jurisdictions in which they typically live.
Most housing agencies originally were established to construct and
manage public housing developments.[Footnote 61] As a result, program
administration does not always align with housing markets. In urban
areas within the same market, several housing agencies may operate
voucher programs with different admissions criteria and subsidy
levels. A paper by researchers at the Brookings Institution argued
that this "fragmentation of local program administration undermines
the potential of the [voucher] program as a mechanism for
deconcentrating urban poverty."[Footnote 62] Extending the
jurisdiction of housing agencies (through consolidation, for example)
likely would give assisted households access to more housing options,
particularly in surrounding suburbs. On the other hand, regionalized
administration of the voucher program may make it harder for
households to make or maintain contact with program administrators
when necessary--for example, assisted households may not have access
to transportation or may have to travel long distances to meet with
housing agency officials.
Several states offer examples of regional or statewide administration.
Thirty-one states have programs in which one housing agency
administers a voucher program throughout a state. These housing
agencies administer from less than one percent to all of their
respective state's total voucher allocation. In addition, as part of
our work, we visited a number of housing agencies in the Boston,
Massachusetts, metropolitan area. As a result of litigation in the mid-
1990s, local housing agencies in the state are permitted to lease
vouchers throughout the state (that is, outside their original
jurisdictions, which typically align with city limits).[Footnote 63]
Although all of the housing agencies with which we spoke suggested
that it was important that housing agencies maintain local control of
their programs, each leased at least one voucher outside their
original jurisdiction. In Brookline--a city with relatively high
housing costs compared with the surrounding area and the nation--more
than half of voucher holders rent apartments outside the city limits.
Although consolidation will not alleviate housing agencies' current
administrative burden, it may begin to address some of the issues
housing agencies and industry groups have raised about a particular
policy--portability. Although portability is one of the hallmark
objectives of the voucher program, almost all the housing agencies we
contacted said that HUD's portability polices should be revised or
eliminated, noting that they are complicated and costly to administer.
Under HUD's portability rules, an assisted household may move to the
jurisdiction of a different housing agency--the receiving agency
either may bill the sending agency for assistance for the transferring
household or absorb the household into its own program. According to
the 2000 Brookings Institution report, because of the complexity of
the portability process--for example, receiving agencies may calculate
subsidy levels differently than sending agencies, or apply more
rigorous screening criteria--many housing agencies do not fully
explain portability to households and do not encourage them to
consider moving.[Footnote 64]
In addition, consolidated waiting lists and single points of contact
for housing assistance within a single housing market, region, or
state may make the process of applying for and obtaining rental
assistance less confusing and more transparent for households seeking
assistance. For example, a large number of housing agencies in
Massachusetts participate in a consolidated waiting list--households
seeking assistance in the state need only put their name on one list
and receive communications from one agency. HUD officials said that
the department has been considering taking steps to maintain the
waiting lists of each housing agency in a centralized system.
Finally, housing agencies we contacted were split on the idea of
consolidation--about one quarter supported it as a way to cut costs
and introduce administrative efficiencies in the voucher program,
while almost half were against it. Some housing industry groups and an
academic with which we spoke argued that consolidation would not save
money--one noted that the administrative fees that small housing
agencies receive are relatively insignificant in terms of total
program dollars--and would sacrifice local discretion and control of
voucher programs. Others noted that administrative costs savings could
result from the consolidation and single-source management of waiting
lists and elimination or substantial reformation of the portability
process; however, no data currently are available to assess this point.
Conclusions:
Over the past decade, Congress has responded to the increasing cost of
vouchers by changing the way the program is funded. Specifically,
rather than providing funding based on the number of vouchers housing
agencies are permitted to lease, Congress currently provides funding
based on housing agencies' prior-year subsidy expenses. Congress also
has capped appropriations so that housing agencies do not always
receive the amount of subsidy or administrative funding for which they
are eligible based on the funding formulas Congress annually
establishes. While this approach gives Congress some control over cost
increases, it does not directly address the market and policy factors
we identified as contributing to increases in program costs.
Although policy makers can do little to alter or control market
changes such as changes in rents and tenant incomes, our analysis
suggests that savings could continue to be realized (or, in some
cases, more households could be served without additional program
funding if Congress chooses to reinvest the funds in the program) if
HUD provided Congress better information on housing agencies' subsidy
reserves. Enhanced information would include the extent of housing
agencies' subsidy reserves, clear and consistent criteria for
determining how much housing agencies would need to retain to help
ensure effective program management, and how much could be rescinded
in future appropriations. Without such information, HUD faces
difficulties in effectively manage the funding Congress provides for
the voucher program, including ensuring that funds disbursed to
housing agencies are used to assist households rather than remaining
unused in reserve accounts.
In tandem with providing information about the use of program funds,
HUD also has an opportunity to advance proposals that would help
increase the efficiency of program administration. In particular, HUD
now has or will have richer, relevant experience and data from which
to draw. In addition to previous reforms HUD has proposed, examples
from the MTW program and HUD's study on administrative fees can offer
options to Congress for streamlining and simplifying administrative
activities and aligning the administrative fee structure with actual
administrative expenses. For example, information and analyses from
these sources could help identify all current administrative
requirements, determine which of those actions are necessary and which
could be eliminated or streamlined, and determine the cost of
performing these activities--which could help reduce program costs in
the future.
Although Congress and HUD have taken several steps to control rising
costs in the voucher program, we have identified a range of options
that offer the additional promise of managing program costs or
increasing efficiency in the long term. These options would also be
applicable to HUD's other rental assistance programs and would have
the potential to generate even greater savings. Implementing rent
reform and administrative consolidation would require policymakers to
consider some potential trade-offs--in the balance are issues such as
the rent burden of assisted households, concentration of poverty, and
the extent of local control over voucher programs. Nevertheless, these
options have certain advantages over the current program structure.
For example, these options could save money or streamline program
administration--both of which are important objectives in a time of
fiscal constraint. Currently Congress is considering a variety of
measures to address some of these issues.
Recommendations for Executive Action:
To help reduce voucher program costs or better ensure the efficient
use of voucher program funds, we recommend that the HUD Secretary
provide information to Congress on (1) housing agencies' estimated
amount of excess subsidy reserves and (2) its criteria for how it will
redistribute excess reserves among housing agencies so that they can
serve more households. In taking these steps, the Secretary should
determine a level of subsidy reserves housing agencies should retain
on an ongoing basis to effectively manage their voucher programs.
Further, the Secretary should consider proposing to Congress options
for streamlining and simplifying the administration of the voucher
program and making corresponding changes to the administrative fee
formula to reflect any new or revised administrative requirements.
Such proposals should be informed by results of HUD's ongoing
administrative fee study and the experience of the MTW program.
Agency Comments and Our Evaluation:
We provided a draft of this report to HUD for comment. In its written
response, reproduced in appendix II, HUD neither agreed nor disagreed
with our recommendations, but provided technical comments that we have
incorporated where appropriate. While the response noted that the
draft report provided an accurate assessment of the program and its
current outcomes, HUD identified several points for clarification and
emphasis, including:
* HUD commented that the stated purpose of our report of identifying
options for increasing efficiencies and simplifying program
administration was inconsistent with our recommendations for agency
action because some of the options do not result in both efficiencies
and simplification. We clarified, where appropriate, that the focus of
our report was to identify reform options that could reduce costs or
create efficiencies.
* HUD also commented that the draft report's discussion of growth in
HUD's outlays could be misleading because this growth reflects only a
change in HUD's disbursement policy and does not relate at all to
changes in program costs. Specifically, HUD stated that starting in
2006, the program was required to disburse all eligible funds, instead
of the department's maintaining those reserves. HUD did not provide
any support that outlays reflect only a change in HUD's disbursement
policy and do not relate at all to changes in program costs. While we
recognize that disbursement policies may affect outlays, changes in
program size and other factors would also affect outlays. Further,
although the draft provides information on the trends in actual HUD
outlays, it focuses on housing agencies' expenditures because they are
a better measure of what housing agencies are paying in subsidies to
assisted households with vouchers. Therefore, we made no changes in
response to this comment.
* HUD also commented that the draft report did not address HUD's
ongoing efforts to limit the accumulation of subsidy reserves. We
added additional language to the report on these efforts, such as the
assistance HUD provides to housing agencies in ensuring that all
available voucher funds are utilized.
* HUD noted that it currently provides quarterly reports to the
Congressional Budget Office on subsidy reserve levels. However, these
quarterly reports do not include information on the estimated amount
of housing agencies' subsidy reserves that exceed prudent levels, as
we are recommending. By providing the estimated amount of excess
subsidy reserves, Congress will be better positioned to make informed
funding decisions, as we illustrated in our draft report.
As agreed with your offices, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
from the report date. At that time, we will send copies to the
Secretary of Housing and Urban Development and other interested
committees. In addition, the report will be available at no charge on
the GAO Web site at [hyperlink, http://www.gao.gov].
If you or your staff have any questions concerning this report, please
contact me at (202) 512-8678 or sciremj@gao.gov. Contact points for
our Office of Congressional Relations and Public Affairs may be found
on the last page of this report. Key contributors to this report are
listed in appendix III.
Signed by:
Mathew J. Scirè:
Director, Financial Markets and Community Investment:
List of Congressional Requesters:
The Honorable Charles E. Grassley:
Ranking Member:
Committee on the Judiciary:
United States Senate:
The Honorable Shelley Moore Capito:
Chairwoman:
Subcommittee on Financial Institutions and Consumer Credit
Committee on Financial Services:
United States House of Representatives:
The Honorable Judy Biggert:
Chairman:
Subcommittee on Insurance, Housing and Community Opportunity
Committee on Financial Services:
United States House of Representatives:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
The objectives of our review were to (1) determine the factors that
have affected costs in the Housing Choice Voucher (voucher) program
from 2003 through 2011 and the actions Congress and the Housing and
Urban Department (HUD) took to manage these costs and (2) identify
additional steps HUD, housing agencies, or policy makers can take to
limit cost growth in the voucher program and more effectively provide
decent, safe, and affordable housing.
To determine the factors that have affected costs in the voucher
program from 2003 through 2011 and the actions Congress and HUD took
to manage these costs, we reviewed and analyzed appropriations
legislation, budget documents--including HUD budget proposals,
Congressional Research Service reports, monthly statements from the
Department of the Treasury, and the Office of Management and Budget SF-
133 reports on budget execution and budget resources. We also reviewed
HUD's annual guidance on the allocation of the program's appropriation
to housing agencies. We used these sources to determine the annual
appropriations and outlays over the period. The starting year for our
analysis reflects the year when Congress began changing the voucher
program's funding formula.[Footnote 65]
We analyzed program data that HUD prepared using information derived
from multiple HUD systems including the Central Accounting and Program
System (HUDCAPS) and Voucher Management System (VMS) to determine how
much housing agencies' expenditures changed from 2003 through 2010.
Specifically, we assessed the extent to which certain factors, such as
subsidy paid to a landlord, program size (that is, the number of
assisted households), and administrative expenses, contributed to the
change in program expenditures over this period. We identified these
factors by reviewing GAO, HUD, and stakeholder studies. We also
reviewed prior work by GAO and others to describe what is known about
the cost-effectiveness and characteristics of vouchers relative to
other forms of rental housing assistance.
To identify additional steps HUD, housing agencies, or policy makers
can take to limit cost growth in the voucher program and more
effectively provide decent, safe, and affordable housing, we
identified and reviewed relevant legislation, draft legislation, and
studies. We analyzed HUD's VMS data on the Net Restricted Assets (NRA)
balances (or subsidy reserves) of housing agencies as of September 30,
2011, to determine the extent of housing agencies' "excess" subsidy
reserves. To derive our estimates of the potential "excess" balances,
we used HUD's 8.5 percent (about a month) threshold to estimate the
excess NRA balance. Also, we analyzed HUD data to determine the number
of housing agencies and amount of funding that Congress offset in
fiscal years 2008 and 2009 and the additional funding Congress
appropriated for and HUD provided to certain housing agencies in 2009.
Further, we visited nine housing agencies in Massachusetts. We
selected these housing agencies based on Massachusetts' use of both
local and regional housing agencies to provide voucher assistance and
the housing agencies' proximity to one another. In addition, we
interviewed 31 of the 35 housing agencies participating in the Moving
to Work (MTW) demonstration program to identify the activities the
agencies had implemented in their voucher programs to reduce program
costs and introduce efficiencies in the program.[Footnote 66] For
example, as part of these interviews, we identified alternate rent
structures these agencies had implemented or proposed.
We also evaluated the cost and policy implications of three types of
programmatic reforms to the voucher program: increasing minimum rents,
changing the percent of income tenants pay toward rent, and requiring
tenants to pay a percentage of fair market rent. In identifying and
assessing these programmatic reforms, we reviewed proposals included
in draft legislation and HUD, Congressional Budget Office, and housing
industry group reports. We also considered reforms certain agencies
have implemented. To estimate the effects of these alternative
approaches to calculating tenant payments on the subsidy levels that
result, we analyzed a December 2010 extract of tenant records from
HUD's Public and Indian Housing Information Center (PIC). These
records contain information about participating households, as of
December 2010, including information on gross and adjusted income
levels, housing unit size and rent, tenant contributions and housing
assistance payments, as well as information on age, sex, and
disability status of each household member. To focus on the core of
the assisted household population, we examined only those households
with five or fewer members, and living in units with one, two or three
bedrooms. We determined the elderly and disability status of each
household. Specifically, we defined a household as an elderly
household if either of the first two household members (the head of
household and possibly a spouse or co-head) were age 62 or over, and
we placed a household in disability status if any of the five members
were identified as having a disability. For the identified subsidy
alternatives, we calculated an alternative tenant contribution using
information on income and applicable fair market rent in the PIC file
as appropriate, and calculated the resulting assistance payment. (The
assistance payment is the difference between the lesser of the payment
standard and gross rent, and the tenant payment, subject to any
existing minimum tenant payments.) We did not consider the possible
effects of any change in household behavior, either in terms of
continued participation in the voucher program or in choice of housing
unit or rent level that could be induced by changes in tenant
contributions.
In conducting our work, we assessed the reliability of datasets
provided by HUD, including data files derived from HUDCAPS, VMS, and
PIC. Specifically, we performed basic electronic testing of relevant
data elements, such as housing assistance payment amounts, total
tenant payment, and unit months leased. We reviewed HUD's data
dictionaries, instructions, and other relevant documentations. We also
interviewed HUD officials knowledgeable about the data to obtain
clarifications about key variables and calculation rules. Where
possible, we compared our results with other sources to ensure the
reasonableness of the information. We determined that the data were
sufficiently reliable for the purpose of this report.
Finally, for all of our objectives, we interviewed HUD officials and
consulted with one academic and officials from various housing groups
including the Center on Budget and Policy Priorities, Council of Large
Public Housing Authorities, National Low-Income Housing Coalition,
National Association of Housing Redevelopment Officials, Public
Housing Authorities Directors Association, Quadel Consulting, and the
Urban Institute. Further, we contacted 53 housing agencies that
administer the voucher program. In selecting these housing agencies,
we considered the number of authorized vouchers, location (that is,
HUD-defined regions), and leasing and spending rates for the voucher
program as of March 2011.
We conducted this performance audit from February 2011 through March
2012 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives.
[End of section]
Appendix II: Comment from U.S. Department of Housing and Urban
Development:
U.S. Department of Housing and Urban Development:
Office of Public And Indian Housing:
Washington, DC 20410-5000:
March 14, 2012:
Mr. Mathew J. Scirè:
Director:
Financial Markets and Community Investment:
U.S. Government Accountability Office:
441 G Street, N.W., Room 2440:
Washington, D.C. 20548:
Dear Mr. Scirè:
Thank you for the opportunity to comment on GAO's draft report on
Options to Increase Housing Choice Program Efficiencies, GAO-12-300.
GAO's review of the Housing Choice Voucher program provides an
accurate assessment of the program and its current outcomes. There are
a few items, however, to which Housing and Urban Development (HUD)
would like to respond.
The major points HUD would like to clarify or amplify are as follows:
1. The title should be "Housing Choice Vouchers", not "Housing
Vouchers".
2. GAO's stated purpose is inconsistent with its recommendations. In
the "Highlights" portion of the report, GAO says the focus is
increasing efficiencies and simplifying program administration.
However, two of the recommendations made for rent reform focus on
reducing costs but have no impact on streamlining program management.
Specifically, implementing higher minimum rents and increasing tenant
rents to 35 percent of their adjusted income. Neither of these options
would reduce administrative burdens for PHAs nor simplify the rent
determination process.
3. The discussion of outlay growth could be misleading. On page 9, GAO
discusses the fact that measured growth in outlays grew 11 percent
over the evaluation period. However, this growth in outlays reflects
only a change in HUD disbursement policy and does not relate at all to
changes in program costs. Starting in 2005, the program transitioned
to a budget based approach rather than a unit based method. With a
congressional requirement (2005 Consolidated Appropriations Act HR
4818/H Report 108-792) to notify PHAs of their full funding allocation
at the beginning of the year, HUD determined that disbursements would
be made on a monthly basis assuming 1/12 of renewal funding
eligibility, on the basis that PHAs were responsible for managing
within the funds available. PIH Notice 2006-3 went on to describe that
PHAs were no longer required to submit year-end settlements, but must
maintain all excess disbursed funds in an Undesignated Fund Account
(the pre-cursor of the Net Restricted Assets (NRA) and Unrestricted
Net Assets (UNA)) to be used only for eligible program expenses and
HAP costs.
The important point illustrated in the GAO text is that housing agency
expenditures grew at essentially the same rate as the growth in
appropriations.
4. The impact of changes in state level assistance is understated. On
page 12, GAO makes reference to "one housing agency in California...
that reported state cuts to social welfare programs, including those
that provide direct cash assistance." Of course, cuts in TANF and SSI
in California affect all of the agencies in California — a state that
serves twenty percent of the HCV assisted households. HUD estimates
that, on average, reductions in TANF and SSI resulted in monthly
increases of $17 and $5, respectively, in housing subsidy for families
receiving those forms of assistance.
5. The discussion of reserves could be misleading. A portion of the
reserve total cited has not been accumulated over time. This funding
consists of recently issued new increment funding where insufficient
time has passed for expenditure. Recently awarded Contract Renewal set
aside funding also comprises a portion of the total reserve figure.
These vouchers would thus be protected in the upcoming rescission, as
would funding deemed a necessary cushion against unforeseen
circumstances. The 9/30/2011 report takes the 9/30 NRA contractor's
report balance of $1.88 billion and excludes: 1) all 2011 new
increments; 2) the set-aside which was not awarded until September
2011; and 3) a reserve allowance of 8.5% of ABA (approximately one
month). This results in an "excess" reserve balance of approximately
$606 million. The 2012 Appropriations Act subsequently recaptured
these reserves ($650 million) through offset to 2012 funding
eligibility.
6. Reserve accumulation issues raised did not address several of HUD's
ongoing efforts to address this issue. No mention was made of HUD's
optimization efforts. These efforts have already helped PHAs project
the funding necessary to maintain desired leasing levels. The
optimization tool takes into account factors such as attrition, PHA
reserves and new vouchers awarded to the PHA.
More importantly, HUD is in the process of implementing new cash
management procedures for the disbursement of HCV funding. The process
of disbursing only the funds required to meet current HAP costs which
began in January 2012 (based upon the most recent validated quarter of
leasing and expense data from VMS) will result in the re-establishment
of HUD-held reserves, whereby unused HAP funds will remain obligated
but undisbursed at the HUD level rather than held by PHAs. Existing
net restricted asset (NRA) balances currently held by PHAs will be
transitioned back to program reserves. This change will reduce program
risk and provide for greater transparency and accountability regarding
the use and availability of program reserves.
7. Reporting Reserve levels to Congress. HUD currently provides
quarterly reports to the Congressional Budget Office on reserve levels.
Thank you for your consideration of these comments. Please do not
hesitate to contact me at (202) 402-1380 should you have any questions.
Sincerely,
Signed by:
Milan M. Ozdinec:
Deputy Assistant Secretary:
Office of Housing and Voucher Programs:
[End of section]
Appendix III: GAO Contact and Staff Acknowledgment:
GAO Contact:
Mathew J. Scirè, (202) 512-8678, sciremj@gao.gov:
Staff Acknowledgments:
In addition to the contact named above, Daniel Garcia-Diaz, Acting
Director; Stephen Brown, William Chatlos, Karen Jarzynka-Hernandez,
Cory Marzullo, John McGrail, Josephine Perez, and Barbara Roesmann
made key contributions to this report.
[End of section]
Footnotes:
[1] The voucher program is authorized under Section 8 of the United
States Housing Act of 1937, as amended. Very low-income households are
those with incomes at or below 50 percent of the area median income;
extremely low-income households are those with incomes at or below 30
percent of the area median income.
[2] Funding for 2003 and 2004 was provided through the Housing
Certificate Fund, which accounted for both the project-based Section 8
and the voucher programs. As a result, we were unable to determine the
appropriated and outlay amounts for the programs for these years.
[3] Expenditure data for 2011 were not available at the time we
conducted our analysis.
[4] Budget authority is the authority federal law provides to enter
into financial obligations that will result in immediate or future
outlays involving federal government funds.
[5] HUD has standards for housing quality. For example, the voucher
program regulations set basic housing quality standards that all units
must meet (1) before assistance can be paid on behalf of a household,
and (2) at least annually during the assisted tenancy. HUD housing
quality standards include requirements for all unit types, including
those in single-family and multifamily dwellings. See 24 C.F.R. §
982.401.
[6] See HUD, Office of Policy Development and Research, Worst Case
Housing Needs 2009: Report to Congress (Washington, D.C.: February
2011). In 2009, more than 7 million renters had worst case housing
needs, up 20 percent from 2007 levels and almost 42 percent from 2001
levels.
[7] See 42 U.S.C. 1437n (b)(1).
[8] Under 42 U.S.C. 1437f(c)(1), HUD annually must publish fair market
rents for the voucher program. See related regulations at 24 C.F.R.
Part 888.
[9] By law, whenever a household moves to a new unit where the gross
rent exceeds the payment standard, the household may not pay more than
40 percent of its adjusted monthly income for rent.
[10] Laws and HUD regulations provide 44 different income exclusions
and deductions: (1) HUD regulations cite 20 income sources to be
excluded when determining households' eligibility for assistance and
calculating tenant rents. See 24 C.F.R. § 5.609. (2) Under various
statutes, 19 other income sources qualify as exclusions. (3) In
addition, program administrators (housing agencies) must apply 5
income deductions, which reduce the amount of income that can be
considered in calculating tenant rents. See 24 C.F.R. § 5.611. Once
program administrators have collected information from households on
income and applicable exclusions and deductions, HUD policy requires
that they independently verify this information ("third-party"
verification). After verifying households' income information, program
administrators must compute the amounts the households will pay in
rent. See 24 C.F.R. § 5.628.
[11] Housing agencies report NRA (or subsidy reserves) under Housing
Assistance Payment (HAP) Equity on their income statements. NRA is the
amount of HAP Equity (subsidy) for the voucher program through the end
of the housing agency's fiscal year and equals total HAP revenues
minus total HAP expenses for eligible unit months (or vouchers) leased
on a calendar-year basis.
[12] See Omnibus Consolidated Rescissions and Appropriations Act of
1996 (P.L. 104-134, 110 Stat. 1321), April 26, 1996. In addition, GAO
is reviewing the effectiveness of MTW, including assessing the steps
HUD has taken to help ensure that participating agencies address
statutory purposes and meet statutory requirements, and the potential
benefits of and concerns about expanding the number of MTW agencies.
[13] This funding flexibility ("fungibility") only applies to MTW
agencies' regular vouchers. Like regular housing agencies, MTW
agencies separately must maintain allocated amounts that exceed the
cost of their authorized special-purpose voucher program activities in
reserve accounts and only may use those balances to pay for authorized
program activities in subsequent years.
[14] This "30-percent rule" has its origins in the "Brooke Amendment"--
in 1969, then-Senator Edward Brooke of Massachusetts offered, and
Congress passed, an amendment to the United States Housing Act of
1937, as amended, that mandated that no family would have to pay more
than 25 percent of its income toward rent in federally assisted
housing. In 1981, Congress increased the maximum to 30 percent.
[15] Housing agencies must establish an application and selection
process that treats applicants for voucher assistance fairly and
consistently and provides an effective method for determining
eligibility. However, voucher program regulations provide flexibility
for each housing agency to develop an application and selection
process tailored to its particular circumstances, including the
ability to establish local preferences for assistance. See 24 C.F.R. §
982.207.
[16] For a detailed discussion of the relevant literature, see Edgar
O. Olsen, "The Cost-Effectiveness of Alternative Methods of Delivering
Housing Subsidies," presentation at the thirty-first annual APPAM
research conference (Charlottesville, Virginia: Oct. 30, 2009).
[17] See GAO, Federal Housing Assistance: Comparing the Costs and
Characteristics of Housing Programs, [hyperlink,
http://www.gao.gov/products/GAO-02-76] (Washington, D.C.: Jan. 31.
2002). We analyzed the characteristics and costs of the housing under
six federal housing programs that continue to increase the number of
assisted households: the voucher program, Low-income Housing Tax
Credits, HOPE VI, Section 202, Section 811, and Section 515. With the
exception of the voucher program, each of these programs is a
production program.
[18] Because of data limitations, we used a different methodology to
present total costs for the HOPE VI program--a HUD program to
revitalize distressed public housing. We found that the total 30-year
cost of a HOPE VI unit with an average size of 2.4 bedrooms was about
27 percent more expensive than vouchers.
[19] See HUD, Office of Policy Development and Research, Economic Cost
Analysis of Different Forms of Assisted Housing (Washington, D.C.:
December 2000) and The President's Commission on Housing, The Report
of the President's Commission on Housing (Washington, D.C.: April
1982).
[20] See HUD, Office of Policy Development and Research, Targeting
Housing Production Subsidies: Literature Review (Washington, D.C.:
December 2003).
[21] Authorized voucher leasing levels for housing agencies are
outlined in their Annual Contributions Contracts with HUD.
[22] HUD provided this reserve funding separately to the funding
reserves (NRA) housing agencies can accumulate and to which we refer
throughout this report.
[23] Beginning in 2003, housing agencies were prohibited from leasing
more vouchers than were authorized in their contracts.
[24] Later in this report, we discuss how continued monitoring and
reduction of housing agencies subsidy reserves could reduce the need
for new appropriations for or increase the number of households
assisted under the voucher program.
[25] See GAO, HUD Rental Assistance: Progress and Challenges in
Measuring and Reducing Improper Rent Subsidies, [hyperlink,
http://www.gao.gov/products/GAO-05-244] (Washington, D.C.: Feb. 18,
2005).
[26] Later in this report, we discuss how HUD's administrative fee
study could be used to streamline administrative requirements and
reduce administrative costs.
[27] Because HUD has allocated subsidy reserve funds to housing
agencies, congressional rescissions must be implemented through an
offset, whereby Congress requires housing agencies to spend down their
reserve funds in order to make up for reductions in the appropriated
amount.
[28] See HUD, Notice PIH 2011-67, Implementation of New Cash
Management Requirements for the Housing Choice Voucher Program (Dec.
9, 2011).
[29] Because housing agencies' reserves are resources that HUD has
disbursed and expended, HUD effectively recaptures any excess reserves
by reducing or offsetting the housing agencies' funding allocation in
another year.
[30] As previously discussed, Congress rescinded $750 million from
HUD's 2009 appropriation for the voucher program, and HUD offset this
amount from housing agencies' reserve accounts. Similarly, in 2008,
Congress rescinded the amount in the housing agencies' reserves
accounts that exceeded 7 percent of the amount of the program's 2007
renewal funding (about $723 million), and HUD offset this amount from
housing agencies' reserve accounts. In 2005, Congress directed HUD to
reduce the housing agencies' reserves account to no more than 1 week
(approximately 2 percent) of subsidy funding. The Affordable Housing
and Self-Sufficiency Improvement Act of 2012 (January 31, 2012, draft)
would permit housing agencies to retain subsidy reserves in an amount
equal to no less than 6 percent of their current year's annual budget
authority. This amount would be exempt from any offsets imposed by HUD.
[31] GAO, Section 8 Tenant-Based Housing Assistance: Opportunities to
Improve HUD's Financial Management, [hyperlink,
http://www.gao.gov/products/GAO/RCED-98-47] (Washington, D.C.: Feb.
20, 1998). In this report we highlighted that the Office of Management
and Budget guidance on budget formation instructs agencies to consider
available funding on hand before requesting new funding.
[32] GAO, Government Performance: GPRA Modernization Act Provides
Opportunities to Help Address Fiscal, Performance, and Management
Challenges, [hyperlink, http://www.gao.gov/products/GAO-11-466T]
(Washington D.C., Mar. 16, 2011).
[33] Based on our analysis, MTW agencies had no excess (nonfungible)
subsidy reserves.
[34] According to HUD, to fund the rescission, the department will
offset reserve balances that exceed approximately one month of housing
agencies' 2012 eligible amounts. See HUD, Notice PIH 2012-9,
Implementation of the Federal Fiscal Year 2012 Funding Provisions for
the Housing Choice Voucher Program( Feb. 8, 2012). For housing
agencies that administer 50 or fewer vouchers, the offset will equal
that portion of the reserve balance that exceeds approximately 6
months of housing agencies' 2012 eligible amounts.
[35] House Financial Services Committee, Transforming Rental
Assistance, Testimony of Shaun Donovan Secretary of the Department of
Housing and Urban Development, 111thCong., 2nd sess., 2010.
[36] See 24 C.F.R. §982.516.
[37] Insurance, Housing, and Community Opportunity Subcommittee, House
Financial Services Committee, Legislative Proposals to Reform the
Housing Choice Voucher Program, Testimony of Sandra B. Henriquez,
Assistant Secretary of the Department of Housing and Urban
Development, 112th Cong., 1st sess., 2011. HUD's fiscal year 2012
budget request also proposed extending the time between re-
certifications for households on fixed incomes.
[38] HUD, Statement of Work: Housing Choice Voucher Program
Administrative Fee Study, Solicitation Number RCHI00992, (Washington,
D.C.: Feb. 8, 2010).
[39] Testimony of Sandra B. Henriquez, Assistant Secretary of the
Department of Housing and Urban Development, 112th Cong., 1st sess.,
2011.
[40] HUD, Office of Public and Indian Housing and Office of Policy
Research and Development, Report to Congress Moving to Work: Interim
Policy Applications and the Future of the Demonstration (Washington,
D.C.: August 2010).
[41] See Affordable Housing and Self-Sufficiency Improvement Act of
2012, discussion draft dated Jan. 31, 2012.
[42] GPRA, §§ 2(a)(1), 2(b)(5). The GPRA Modernization Act of 2010
(GPRAMA) updated the federal government's performance measurement
framework established in GPRA.
[43] For a detailed discussion of how we selected which rent reform
options to include in our analysis, see the detailed scope and
methodology in appendix I. Academics have advanced other rent reform
options that we did not include in this report. For example, see Amy
Crews Cutts and Edgar O. Olsen, "Are Section 8 Housing Subsidies Too
High?" Journal of Housing Economics, vol. 11 (2002): 214-243.
[44] If a housing agency adopts a minimum rent policy, the housing
agency must grant exemptions from the requirement to any household
that the housing agency determines is unable to pay the amount because
of financial hardship, unless the hardship is temporary. See 24 CFR
§5.630.
[45] Our analysis showed that 0.5 percent of all assisted households
pay no rent and 1.3 percent pay from $0 to $50.
[46] A rent structure based on gross income would eliminate the
deductions and exclusions to income that households currently may
claim.
[47] In past work we highlighted some of the limitations of HUD's
process for estimating fair market rents and ways to improve the
accuracy of these estimates. See GAO, Rental Housing: HUD Can Improve
Its Process for Estimating Fair Market Rents, [hyperlink,
http://www.gao.gov/products/GAO-05-342] (Washington, D.C.: Mar. 31,
2005).
[48] Our analysis of current household characteristics showed that 81
percent of nonelderly, nondisabled households are comprised of at
least one parent and one child. As a result, we refer to these
households as "families with children" throughout this report.
[49] Our analysis of current household characteristics and incomes
showed that this approach would save approximately $691 million
annually.
[50] We considered a household disabled if any member of the household
had a disability.
[51] We segmented the incomes of assisted household into 10 equal
groups. We considered assisted households in the lowest tenth as the
lowest-income households and assisted households in the highest tenth
as the highest-income households.
[52] In addition, under all other rent reform scenarios, less than 0.5
percent of households would lose their subsidies.
[53] We evaluated the effect (in terms of costs and households served)
of requiring assisted households to pay 12, 15, 20, 30, and 35 percent
of the fair market rent. (The October 5, 2011, draft Section 8 Savings
Act includes a provision that would require certain households to pay
the greater of $75 or 12 percent of the fair market rent.) Our
analysis showed that requiring households to pay 12, 15, 20, or 30
percent of the fair market rent would increase program costs and
reduce the number of households served. For example, requiring
households to pay 12 percent of the fair market rent would increase
program costs by approximately $4.1 billion and reduce the number of
households served by approximately 451,000; requiring households to
pay 30 percent of the fair market rent would increase program costs by
approximately $165 million and reduce the number of households served
by approximately 27,000.
[54] In the early stages of the MTW demonstration, several housing
agencies experimented with time limits on assistance as a means of
encouraging self sufficiency among assisted households. All of these
housing agencies largely abandoned time limits. However, some were in
favor of mandatory minimum rents or subsidies that decreased over
time, regardless of a household's income. Applied Real Estate
Analysis, Inc. and The Urban Institute, The Experiences of Public
Housing Agencies That Established Time Limits Policies under the MTW
Demonstration (Washington, D.C.: May 2007).
[55] See GAO, HUD Rental Assistance: Progress and Challenges in
Measuring and Reducing Improper Rent Subsidies, [hyperlink,
http://www.gao.gov/products/GAO-05-224] (Washington, D.C.: Feb. 18,
2005).
[56] The MTW statute requires that "an application to participate in
the demonstration shall include a plan that… includes criteria for
establishing a reasonable rent policy, which shall be designed to
encourage employment and self-sufficiency by participating families,
consistent with the purpose of this demonstration, such as by
excluding some or all of a family's earned income for purposes of
determining rent." See HUD, Policy Development and Research, Report to
Congress, Moving to Work: Interim Policy Applications and the Future
of the Demonstration (Washington, D.C.: August 2010).
[57] The National Low Income Housing Coalition advocates for the
affordable housing needs of low-income people.
[58] Subcommittee on Insurance, Housing, and Community Opportunity,
House Committee on Financial Services, testimony of Linda Couch,
Senior Vice President for Policy, National Low Income Housing
Coalition,112th Cong., 1st sess., 2011.
[59] See HUD, Office of Policy, Program, and Legislative Initiatives,
Rebalancing HUD's Oversight and Small PHAs' Regulatory Burdens
(Washington, D.C.: 2008). About 58 percent of housing agencies
administer 400 or fewer vouchers.
[60] See HUD, Office of Policy Development and Research, Section 8
Administrative Fees: A Report to Congress (Washington, D.C.: June
1994).
[61] Approximately 850 housing agencies only administer vouchers.
[62] See Bruce Katz and Margery Austin Turner, Who Should Run the
Housing Voucher Program? A Reform Proposal. Working paper prepared for
the Brookings Institution, Center on Urban and Metropolitan Policy
(Washington, D.C.: November 2000).
[63] Williams v. Hanover Housing Authority, 871 F. Supp. 527 (D. Mass.
1994); see also Williams v. Hanover Housing Authority, 926 F. Supp. 10
(D. Mass. 1996), rev'd and remanded on other grounds, 113 F.3d 1294
(1ST. Cir. 1997).
[64] See Who Should Run the Housing Voucher Program? A Reform Proposal.
[65] Funding for 2003 and 2004 was provided through the Housing
Certificate Fund, which accounted for both Section 8 programs--the
project-based and tenant-based programs. As a result, we were unable
to determine the appropriated and outlay amounts for the programs for
these years. In addition, in 2005 the Housing Certificate Fund was
split into two accounts, one of which was the tenant-based rental
assistance account. Because of the split, about $4.2 billion from the
advance appropriation enacted in fiscal year 2004 and available in
2005 does not appear in this account. Instead, it appears in the
Housing Certificate Fund where it was appropriated. Total available
resources for tenant-based rental assistance in fiscal year 2005 were
$14.8 billion.
[66] We did not contact the Philadelphia Housing Authority because the
agency currently is under administrative receivership. We did not
contact the Boulder Housing Partners, and Lexington-Fayette Urban
County Housing Authority because they had not yet entered into MTW
agreements with HUD at the time of our analysis. In addition, the
Housing Authority of the County of Santa Clara administers its own MTW
program as well as the Housing Authority of the City of San Jose's MTW
program.
[End of section]
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